Question 1

$\begin{array} { l c } 
\hline  { \text { Item } } & \text { Billions of dollars } \
\hline \text { Wages } & 5,000 \
\text { Consumption expenditure } & 3,500 \
\text { Interest, rent, and profit } & 1,500 \
\text { Investment } & 1,200 \
\text { Statistical discrepancy } & 0 \
\text { Net exports } & - 300 \
\text { Indirect taxes minus subsidies } & 500 \
\text { Depreciation } & 800 \
\hline
\end{array}$
The table above has information about an economy. Using this information, GDP equals

Accepted Answer

A) $6,500 billion. 
B) $7,800 billion. 
C) $8,500 billion. 
D) $7,000 billion. 
E) some amount that cannot be calculated without information on the amount of government expenditures.

Question 2

When calculating real GDP, the reference base year

Accepted Answer

A) always reduces the value of GDP compared to GNP. 
B) allows us to increase the value of goods and services. 
C) allows us to account for changes in GNP compared to GDP. 
D) allows us to calculate the value of the goods and services in terms of prices of that base year. 
E) usually increases the value of GNP compared to GDP.

Question 3

In a small country, using prices of 2012, GDP in 2012 was $100 and GDP in 2013 was $110. Using prices of 2013, GDP in 2012 was $200 and GDP in 2013 was $210. The country's BEA will calculate --------------------Percent as the growth in real GDP between those years.

Accepted Answer

A) 5 
B) 10 
C) 15 
D) 7.5 
E) None of the above answers is correct.

Question 4

The U.S. economy is experiencing rising output, rising employment, rising incomes and falling unemployment. These conditions best describe a business cycle-------------------- .

Accepted Answer

A) trend 
B) peak 
C) expansion 
D) trough 
E) recession

Question 5

The purchase of 500 shares of Honda stock by the California State Employees' Pension fund

Accepted Answer

A) is counted as part of import expenditure in the GDP accounts because Honda is a foreign firm. 
B) is counted as consumption expenditure. 
C) is counted as investment in the GDP accounts. 
D) is counted as part of export expenditure in the GDP accounts because Honda is a foreign firm. 
E) is not counted as part of GDP.

Question 6

Production by Honda, a Japanese firm, in the United States is included in -------------GDP and production by Nike Corporation, a U.S. firm, in Vietnam is included in GDP-------------.

Accepted Answer

A) U.S.; U.S. 
B) Japanese; Vietnamese 
C) Japanese; U.S. 
D) U.S.; Vietnamese 
E) U.S. and Japanese; U.S. and Vietnamese

Question 7

When Jamie purchases a classic 1968 Plymouth Cuda convertible from Shane, GDP

Accepted Answer

A) does not change, because Jamie did not buy the car from a dealership. 
B) increases, because the car is a durable good and increases investment. 
C) increases, because the car is a durable good and increases consumption. 
D) does not change, because the car was not produced this year. 
E) increases, because this expenditure decreases saving.

Question 8

Which adjustment(s)must be made to convert net domestic product to GDP?
i.add indirect taxes
ii.subtract subsidies
 iii)add depreciation

Accepted Answer

A) i and iii only 
B) iii only 
C) ii only 
D) i, ii and iii 
E) i and ii

Question 9

If you buy a five-year-old TV from a friend, the amount you paid for the TV is

Accepted Answer

A) included in this year's GDP only if the TV set was manufactured in the United States. 
B) always added to consumption expenditures but not investment. 
C) always added to investment but not consumption. 
D) added to investment if the TV is expected to last more than 5 additional years and added to consumption if the TV is expected to last less than 5 additional years. 
E) not included in this year's GDP.

Question 10

Which of the following describe the United States economy in 2008 and and the start of 2009?

Accepted Answer

A) Real GDP reached a peak. 
B) Real GDP per person increased. 
C) The economy was in a recession. 
D) The economy was in an expansion. 
E) None of the above answers is correct.

Question 11

According to the expenditure approach to measuring GDP, in the United States , the largest component of GDP is

Accepted Answer

A) government expenditure on goods and services. 
B) investment. 
C) wages. 
D) consumption expenditure. 
E) net exports of goods and services.

Question 12

Over the business cycle,

Accepted Answer

A) only real GDP fluctuates around its trend and potential GDP remains equal to its trend. 
B) real GDP fluctuates around its trend. 
C) only potential GDP fluctuates around its trend and real GDP remains equal to its trend. 
D) neither real GDP nor potential GDP fluctuate because they just grow smoothly along their trends. 
E) potential GDP fluctuates around its trend.

Question 13

Mexico City is notorious for its excessive pollution. Mexico's measure of GDP is

Accepted Answer

A) changed by the pollution only when comparing its GDP with the U.S. GDP. 
B) decreased by the estimated value of the pollution's harm. 
C) not affected by the estimated value of the pollution's harm. 
D) increased by the estimated value of the pollution's harm. 
E) None of the above answers is correct.

Question 14

Although imperfect, which of the following is used as a measure of the standard of living?

Accepted Answer

A) nominal GNP × population 
B) nominal GDP × population 
C) nominal GNP ÷ population 
D) real GDP × population 
E) real GDP ÷ population

Question 15

Total expenditure equals

Accepted Answer

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

Question 16

When industrial activity increases -------------

Accepted Answer

A) health and life expectancy decrease 
B) the increase in real GDP is partially offset by the increase in pollution 
C) and real GDP increases, it is the case that in all nations fewer resources are devoted to protecting the environment 
D) pollution does not necessarily increase 
E) GDP decreases because of pollution

Question 17

$\begin{array} { l c c c c } 
& { \text { Date for } \mathbf { 2 0 1 2 } } & & { \text { Data for } \mathbf { 2 0 1 3 } } \
\hline  { \text { Item } } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Bananas } & 100 & \$ 2.00 & 125 & \$ 4.00 \
\text { Sunscreen } & 60 & \$ 5.00 & 75 & \$ 4.00 \
\hline
\end{array}$

Bananaland produces only bananas and sunscreen and the quantities and prices for 2012 and 2013 are given in the table above. 
- The base year is 2012. Real GDP in 2012 is equal to

Accepted Answer

A) $800. 
B) $640. 
C) $200. 
D) $500. 
E) $625.

Question 18

Which of the following statement is correct?

Accepted Answer

A) If nominal GDP decreases, then real GDP must increase. 
B) If nominal GDP increases, then real GDP must increase. 
C) If real GDP decreases, then nominal GDP must decrease. 
D) If nominal GDP does not change, then real GDP cannot change. 
E) Nominal and real GDP can change either in the same direction or the opposite direction.

Question 19

Net exports of goods and services increase when

Accepted Answer

A) imports of goods and services increase and exports of goods and services do not change. 
B) exports of goods and services decrease and imports of goods and services do not change. 
C) consumption expenditure increases. 
D) exports of goods and services increase and imports of goods and services do not change. 
E) consumption expenditure decreases.

Question 20

The base year is 2012. A country only produces Blu-ray players. The price of a Blu-ray player in 2012 was $100. The price of a Blu-ray player was $90 in 2013. The quantity of Blu-ray players Produced in 2012 was 10,000 units and in 2013 was 10,500 units. Real GDP in 2012 equals

Accepted Answer

A) $945,000. 
B) $1,000,000. 
C) $900,000. 
D) $1,050,000. 
E) an amount that cannot be determined without information about real GDP in 2007 .

Exam 5: GDP: a Measure of Total Production and Income