Deck 2: Measuring Macroeconomic Data

Question 1

The reason only newly produced goods and services are counted in GDP is that ________.

A) it is very difficult to input a value to used goods
B) most expenditures on used goods and services take place outside the market
C) it does not help economists make better economic predictions because second-hand goods rarely have any residual value
D) it allows economists to avoid double counting the production of goods and services
E) none of the above

Answer 1

it allows economists to avoid double counting the production of goods and services

Question 2

AAA

Answer 2

AAA

Question 3

Which of the following will be counted as an investment expenditure in the measurement of GDP?

A) purchase of a tractor by a farmer from his neighbor
B) purchase of preferred stock in ABC Corporation
C) purchase of a newly built tractor by a college fraternity for hay rides at their charity fair
D) purchase of an apartment in a newly-built building
E) purchase of newly built computers by a municipal government

Answer 3

purchase of an apartment in a newly-built building

Question 4

Assuming that the GDP breakdown shown in Table 2.1 is typical of a given year in the U.S. we can say that ________.

A) we spend twice as much on services as we do on goods consumption
B) consumption of nondurable goods is twice that of durables
C) private investment is the smallest of the main domestic components of GDP
D) all of the above
E) none of the above

Answer 4

all of the above

Question 5

Which of the following is a valid characteristic of the U.S. economy over the last sixty years?

A) Investment is more volatile than other components of GDP.
B) Government spending has remained around 20% of GDP over much of the postwar period.
C) The U.S. has, for the most part, been running a trade deficit which has trended upward to over 5% of GDP.
D) all of the above
E) none of the above

Question 6

Which government entity calculates GDP in the United States on a quarterly basis?

A) the Treasury Department
B) the Commerce Department
C) the Federal Reserve
D) all of the above
E) none of the above

Question 7

The fundamental identity of national income accounting implies ________.

A) Expenditure = Production + Income
B) Expenditure = Production = Income
C) Income =Expenditure - Production
D) Income =Expenditure/ Production
E) None of the above

Question 8

In a two-good economy, the price of video games is $40 and the price of energy drinks is $2. If the annual output of this economy is 100 video games and 500 drinks, the GDP is ________.

A) $50,080
B) $25,200
C) $5,000
D) $20,200
E) none of the above

Question 9

The statistic most often used by economists to measure the value of economic activity is ________.

A) GDP
B) the CPI
C) labor-force participation rate
D) the nominal interest rate
E) the real interest rate

Question 10

State the fundamental identity of national income accounting. Why is it not possible for this identity to be violated?

Question 11

Which of the following will be counted as an expenditure in the measurement of GDP? (Assume that none of the transactions is concealed from the relevant authorities.)

A) the value of a used automobile that remains unsold on the dealer's lot
B) purchase of a lamp at a neighborhood garage sale
C) purchase, using foodstamps, of a loaf of bread
D) payment by a parent to her child for doing household laundry
E) purchase of flour by a bakery

Question 12

Who helps calculate GDP in the United States?

A) the Bureau of Economic Analysis
B) the Census Bureau
C) the Bureau of Labor Statistics
D) all of the above
E) none of the above

Question 13

Assuming that the GDP breakdown shown in Table 2.1 is typical of a given year in the U.S. we can say that ________.

A) federal defense spending is twice that of non-defense spending
B) federal spending is twice as large as that of the states and local governments
C) government spending constitutes about 40% of GDP
D) all of the above
E) none of the above

Question 14

To avoid double counting in the calculation of GDP, which types of goods are typically excluded from the calculation?

A) intermediate goods
B) capital goods
C) inventory goods
D) nonmarket goods
E) value-added goods

Question 15

If C is consumption, I is investment, G is government purchases and NX is net exports, according to the expenditure approach, Y would stand for ________; and the national income identity could be written as ________.

A) transfers; Y = C + I + G - NX
B) CPI; Y = C + I + G + NX
C) GDP; Y - C - I = G + NX
D) income; Y = C - I - G + NX
E) the real interest rate; Y = C + I + G + NX

Question 16

Which of the following is typically not counted in GDP?

A) any nonmarket good and services
B) income generated from apartment rentals
C) illegal drug sales
D) all of the above
E) none of the above

Question 17

The difference between inventories and inventory investment is that typically ________.

A) the first one is a stock of unfinished or unsold goods; the second one is a flow that indicates productive activity
B) the first one denotes the change in holdings of capital; the second one includes most final goods
C) the first one is measured at the beginning of the year; the second one is measured at the end of the year
D) all of the above
E) none of the above

Question 18

The production approach to measuring GDP requires ________.

A) that the market value of a given good is a reasonable approximation of its economic value
B) that all goods and services be added up before assigning a market value
C) that no good or service rendered outside the market be included in GDP
D) all of the above
E) none of the above

Question 19

Consider a firm whose final output (and sales) in a particular year has a value of $1,200. To produce these goods, the firm used $500 worth of intermediate goods it had purchased in previous years plus $200 worth of newly-purchased intermediate goods. In the subsequent year, this same firm again sells $1,200 worth of final goods, but in this year has purchased $700 worth of intermediate goods, of which $100 is not used in current production but, rather, added to the firm's inventory. For each of these two years, calculate the value added by this firm. For each of these two years, calculate the contribution of this firm to the economy's GDP.

Question 20

Capital goods are typically purchased to ________. They get included in GDP ________.

A) replace raw materials; in the year they are produced
B) enable the investor to produce other goods and services; in each year they are utilized
C) enable the investor to consume less in the current period; as they are used up in the stages of production
D) enable the investor to produce other goods and services; in the year they are produced
E) none of the above

Question 21

Assuming that the GDP breakdown shown in Table 2.1 is typical of a given year in the U.S. we can say that ________.

A) we spend twice as much on goods consumption as we do on services
B) consumption of durable goods is twice that of nondurables
C) government purchases is the largest main component of GDP
D) all of the above
E) none of the above

Question 22

An international comparison of eight major industrialized countries reveals the following about the components of GDP: ________.

A) China has the highest share of investment among the eight countries
B) India has the smallest government share of output
C) the U.S. is the largest consumer as a share of GDP
D) all of the above
E) none of the above

Question 23

An example of a nominal variable is ________.

A) income measured at current market prices
B) expenditures in terms of the quantities of actual goods
C) the chain weighted measure of GDP
D) all of the above
E) none of the above

Question 24

All income, production, and expenditure variables that are measured at current market prices are referred to as ________.

A) real variables
B) nominal variables
C) implicit variables
D) index variables
E) none of the above

Question 25

Which of the following is included in net government income?

A) social security benefits
B) factor income
C) taxes
D) all of the above
E) none of the above

Question 26

Describe how the investment component of GDP is distinct from the other components.

Question 27

Which of the following is a valid characteristic of the U.S. economy over the last sixty years?

A) Investment is smoother than most of the other components of GDP, especially consumption.
B) Government spending has remained around 20% of GDP over much of the postwar period.
C) The U.S. has, for the most part, been running a trade surplus which has trended upward to over 5% of GDP.
D) all of the above
E) none of the above

Question 28

According to the fundamental identity of national income accounting, income and output are identical. Why, then, is national income not equal to GDP?

Question 29

Subtraction of ________ from Gross National Product yields Gross Domestic Product.

A) net factor income
B) depreciation
C) factor income to the rest of the world
D) net government income
E) none of the above

Question 30

A few economies have the interesting characteristic that exports are more than 100 percent of the economy's GDP. How is this possible?

Question 31

The total income earned by residents of an economy is known as

A) private disposable income
B) gross national product
C) gross domestic product
D) national income
E) none of the above

Question 32

The income approach to measuring GDP involves adding up the following ________.

A) household income and income generated by firms
B) private spending, tax revenues and government spending
C) transfer payments and income taxes
D) interest income, profits and social security benefits
E) wages, benefits and interest income

Question 33

Over the past half-century, government transfer payments have increased. As a result ________.

A) interest payments on government debt have declined
B) government expenditures have become a larger portion of GDP
C) the volatility of investment expenditures has declined
D) net exports have been positive in most years
E) none of the above

Question 34

Private disposable income equals GDP ________.

A) minus corporate profits and net factor income
B) plus transfer payments and net exports
C) plus depreciation, transfer payments, and interest payments on government debt
D) plus net factor income minus net government income
E) none of the above

Question 35

Which of the following is included in the calculation of national income?

A) compensation of employees
B) rental income
C) indirect business taxes
D) all of the above
E) none of the above

Question 36

An international comparison of eight major industrialized countries reveals the following about the components of GDP: ________.

A) the U.S. has one of the largest shares of GDP going to investment
B) the U.S. has one of the smallest government share of GDP
C) the U.S. runs one of the largest trade deficits
D) all of the above
E) none of the above

Question 37

In a country with unusually high tax rates, one might expect that ________.

A) GDP might be overstated because the government might avoid running surpluses
B) GDP might be understated because its citizens might avoid reporting some of their income
C) GDP might be overstated because the government might raise its outlays
D) GDP might be understated because its citizens might flee the country
E) after tax income should be much higher than that of countries with lower tax rates

Question 38

Which component of employee compensation has grown most rapidly in recent decades?

A) net interest income
B) benefits
C) transfer payments
D) wages and salaries
E) net factor income

Question 39

Nominal GDP =________ where the price level is the ________.

A) Price level ÷ Real GDP; GDP deflator
B) Price level × Real GDP; CPI
C) Price level ÷ Real GDP; CPI
D) Price level × Real GDP; GDP deflator
E) none of the above

Question 40

Net national product + ________=________.

A) net interest; gross domestic product
B) depreciation; gross national product
C) depreciation; private disposable income
D) private disposable income; gross national product
E) none of the above

Question 41

Which is the largest category of income in the United States?

A) self-employment income
B) corporate profits
C) employee compensation
D) net interest income
E) none of the above

Question 42

Examples of deflators are the ________ and ________ deflator

A) real; nominal
B) private disposable income; gross national product
C) personal consumption expenditure; gross domestic product
D) gross domestic product; rental income
E) private disposable income; personal consumption expenditure

Question 43

The inflation rate = ________.

A) nominal GDP - real GDP
B) growth rate in real GDP - growth rate in nominal GDP
C) growth rate in real GDP + growth rate in nominal GDP
D) nominal GDP ÷ real GDP
E) none of the above

Question 44

Real GDP =________ where the price level is the ________.

A) Nominal GDP × Price level; GDP deflator
B) Nominal GDP ÷ Price level; GDP deflator
C) Nominal GDP ÷ Price level; CPI
D) Nominal GDP × Price level; CPI
E) none of the above

Question 45

Real and Nominal GDP

Based on the table "Real and Nominal GDP," if year one is the base year, then the real GDP in year three, is ________.

A) 7200
B) 8250
C) 1050
D) 7500
E) none of the above

Question 46

Examples of deflators are the ________ and ________ deflator

A) real; nominal
B) private disposable income; gross national product
C) personal consumption expenditure; rental income
D) gross domestic product; private disposable income
E) none of the above

Question 47

Computing the CPI is important because ________.

A) it is a very accurate and error-free measure of the cost of living
B) it helps predict spending patterns for particular goods and services
C) government uses it to index entitlements, such as social security benefits, so that beneficiaries do not lose purchasing power in periods of inflation
D) all of the above
E) none of the above

Question 48

The most frequently reported price index is ________.

A) the consumer price index (CPI)
B) the gross domestic product (GDP) deflator
C) the personal consumption expenditure (PCE) deflator
D) chain weighted GDP
E) the interest income deflator

Question 49

The Bureau of Labor Statistics (BLS) reports the CPI ________.

A) every month
B) every two months
C) every three months
D) every year
E) twice each month

Question 50

Variables measured at current market prices are nominal, rather than real. In what sense are nominal variables unreal?

Question 51

Real and Nominal GDP

Based on the table "Real and Nominal GDP," if year one is the base year, then the inflation rate in year three is ________.

A) 14.6%
B) 9.5%
C) 9.9%
D) 11.5%
E) 16.5%

Question 52

Real and Nominal GDP

Based on the table "Real and Nominal GDP," if year one is the base year, then the real GDP in year two, is ________.

A) 5000
B) 5250
C) 5900
D) 6175
E) none of the above

Question 53

Real and Nominal GDP

Based on the table "Real and Nominal GDP," if year three is the base year, then the real GDP in year two is ________.

A) 8250
B) 5900
C) 7500
D) 6775
E) none of the above

Question 54

Real and Nominal GDP

Based on the table "Real and Nominal GDP," if year one is the base year, then the nominal GDP in year two, is ________.

A) 8250
B) 5000
C) 7200
D) 7500
E) none of the above

Question 55

Real and Nominal GDP

Based on the table "Real and Nominal GDP," if year one is the base year, then the GDP deflator for year two is ________.

A) 95.5
B) 123.5
C) 118
D) 104.7
E) 116.6

Question 56

Computing the CPI is important because it provides ________.

A) a rough measure of the cost of living
B) it is used as a benchmark in labor negotiations
C) government uses it to index entitlements, such as social security benefits, so that beneficiaries do not lose purchasing power in periods of inflation
D) all of the above
E) none of the above

Question 57

The inflation rate can be obtained by ________.

A) dividing the nominal GDP by the GDP deflator
B) subtracting the real GDP from the nominal GDP
C) multiplying the CPI by GDP
D) subtracting the growth in real GDP from the growth in nominal GDP
E) none of the above

Question 58

To compute the CPI, the Bureau of Labor Statistics (BLS) compiles a "basket of goods" that ________; each price in the index is weighted by ________.

A) are produced in the United States; an expenditure survey
B) the average farmer produces; how long it takes for the particular good to reach the market
C) the average urban consumer buys; the quantity of the good that goes into the basket
D) only members of congress purchase; a "luxury" score
E) is typical of consumers below the poverty line; the perceived quality of the good

Question 59

In 1995, the Boskin commission identified the following problem(s) with the computation of the CPI

A) it does not account for the fact that consumers can substitute away from products as they get more expensive
B) an increase in price could be the result of quality improvements rather than an increase in the cost of living
C) it often does not reflect decreases in the cost of living that occur when new goods are introduced
D) all of the above
E) none of the above

Question 60

The Bureau of Labor Statistics (BLS) calculates the PCE deflator ________.

A) every month
B) every two months
C) every three months
D) every year
E) twice each month

Question 61

Real and Nominal GDP

Based on the table "Real and Nominal GDP," if year one is the base year, then the GDP deflator for year three is ________.

A) 165
B) 139.8
C) 85.8
D) 133.6
E) 114.6

Question 62

If a large number of people were to leave their civilian jobs in order to join the military, which of the following would increase?

A) the civilian labor force
B) the civilian employment ratio
C) the civilian unemployment rate
D) the civilian labor-force participation rate
E) none of the above

Question 63

The unemployment rate that is typically reported in the media is ________.

A) based on a survey from 150,000 business establishments on weekly earnings, number of workers and hours worked
B) reported on a monthly basis by the Bureau of Labor Statistics (BLS)
C) based on a survey of 150,000 households
D) reported by the Federal Reserve
E) none of the above

Question 64

Figure 2.5
According to Figure 2.5, the United States civilian labor force participation rate in April 2010 was ________.

A) 6.4%
B) 18.5%
C) 9.9%
D) 65.2%
E) none of the above

Question 65

The household and establishment surveys sometimes differ on the labor market conditions. This is probably because ________.

A) the establishment survey counts a worker who holds two jobs twice and the household survey does not
B) the establishment survey only counts employees of a company and the household survey also counts the self employed
C) the establishment survey covers more workers than the household survey
D) all of the above
E) none of the above

Question 66

Which of the following is a good indicator of short-term interest rates in international markets?

A) prime rate
B) Treasury bill rate
C) LIBOR
D) Federal funds rate
E) none of the above

Question 67

Figure 2.5
According to Figure 2.5, the United States civilian employment ratio in April 2010 was ________.

A) 142.5%
B) 34.8%
C) 58.8%
D) 65.2%
E) none of the above

Question 68

Figure 2.5
According to Figure 2.5, the United States civilian unemployment rate in April 2010 was ________.

A) 6.4%
B) 18.5%
C) 9.9%
D) 65.2%
E) none of the above

Question 69

In relatively poor economies, modest expenditures on public health (immunization of children) can produce large improvements. What does this imply about the accuracy of the growth rate of real GDP as a measure of national well-being? How is the situation different in rich economies?

Question 70

The unemployment rate that is typically reported in the media is ________.

A) based on a survey from 150,000 business establishments on weekly earnings, number of workers and hours worked
B) computed every three months
C) based on a survey of 60,000 households
D) reported by the Treasury Department
E) none of the above

Question 71

The nominal interest rate ________.

A) makes no allowance for inflation
B) is a percentage of the amount borrowed
C) is the rate that most banks advertise
D) all of the above
E) none of the above

Question 72

The household and establishment surveys sometimes differ on the labor market conditions. This is probably because ________.

A) the household survey counts a worker who holds two jobs twice and the establishment survey does not
B) the household survey only counts employees of a company and the establishment survey also counts the self employed
C) the household survey covers more workers than the establishment survey
D) all of the above
E) none of the above

Question 73

The real interest rate differs from the nominal rate in that ________.

A) it more accurately represents the true cost of borrowing
B) it varies negatively with changes in the rate of inflation
C) it is the better indicator of credit market conditions
D) all of the above
E) none of the above

Question 74

There are different interest rates associated with many types of securities. Which of the following statements is correct?

A) they vary depending on the liquidity of the security
B) they vary depending on the risk associated with the security
C) except in very unusual times, most interest rates move together
D) all of the above
E) none of the above

Question 75

Figure 2.5
According to Figure 2.5, the United States civilian labor force in April 2010 was ________.

A) 154.8 million
B) 139.5 million
C) 237.4 million
D) 222.1 million
E) none of the above

Question 76

The Fisher equation implies ________.

A) the nominal interest rate equals the real rate of inflation plus expected inflation
B) the real interest rate equals expected inflation
C) expected inflation equals current inflation
D) the growth rate of inflation equals the real minus the nominal rates of interest
E) none of the above

Question 77

Assume that a high proportion of recent college graduates decides to stay in school seeking advanced degrees, rather than confront the challenge of landing a good job in the midst of generally high unemployment. What is the direct impact of this behavior on (a) the labor force participation rate, (b) the employment ratio, and (c) the unemployment rate?

Question 78

The Federal Funds Rate is ________.

A) the rate charged on overnight loans of deposits (held by the Federal Reserve) between banks
B) the rate charged on corporate bank loans to healthy "prime" borrowers
C) the rate charged on U.S. Treasury bonds by the Federal Reserve
D) the rate charged on U.S securities with maturities of less than a year
E) none of the above

Question 79

Which of these represents an example of citizens who would not typically be counted as unemployed?

A) when your economics professor loses his job and gets a new one at McDonald's
B) when your fourteen-year-old cousin loses her summer job in September
C) when your neighbor has been out of work for so long that he decides to stay at home and write a novel
D) all of the above
E) none of the above

Question 80

A discouraged worker might ________.

A) be counted as unemployed
B) have tried to find a job during the month prior to the household survey, but without success
C) have been prevented from working during the week prior to the household survey, due to illness or other temporary circumstances
D) be waiting to return to a job from which he or she has been laid off
E) none of the above