Question 1

Since it is counted as investment, why doesn't the purchase of earthmoving equipment from China by a U.S. corporation increase U.S. GDP?

Accepted Answer

The answer of Since it is counted as investment, why...

Question 2

The residents of country A earn $500 million of income from abroad. Residents of other countries earn $200 million in country A. These earnings are accounted for in country A's

Accepted Answer

A) country A's net factor payments from abroad are positive, and its GDP is larger than its GNP. 
B) country A's net factor payments from abroad are positive, and its GNP is larger than its GDP. 
C) country A's net factor payments from abroad are negative, and its GDP is larger than its GNP. 
D) country A's net factor payments from abroad are negative, and its GNP is larger than its GDP.

Question 3

Which of the following is not included in GDP?

Accepted Answer

A) a can of bug spray 
B) the services of an exterminator 
C) the honey produced and sold by a beekeeper 
D) All of the above are included in GDP.

Question 4

The U.S. government pays an economist at the U.S. Department of Commerce $50,000 in salary in 2006. The economist then retires. In 2007, the government pays him $30,000 in retirement benefits. Which of the following is correct?

Accepted Answer

A) The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government purchases. 
B) The 2006 payment is included in 2006 GDP as government purchases, but the 2007 payment is not included in 2007 GDP. 
C) The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government transfer payments. 
D) The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is allocated to previous years' GDP according to the amount of work performed by the economist each year.

Question 5

If you buy a burger and fries at your favorite fast food restaurant,

Accepted Answer

A) then neither GDP nor consumption will be affected because you would have eaten at home had you not bought the meal at the restaurant. 
B) then GDP will be higher, but consumption spending will be unchanged. 
C) then GDP will be unchanged, but consumption spending will be higher. 
D) then both GDP and consumption spending will be higher.

Question 6

The government computes measures of income other than GDP because these other measures usually tell different stories about overall economic conditions.

Accepted Answer

A) True 
 B)False

Question 7

In the economy of Ukzten in 2010, consumption was $5300, GDP was $8800, government purchases were $1800, imports were $500, and investment was $2000. What were Ukzten's exports in 2010?

Accepted Answer

A) -$800 
B) -$300 
C) $200 
D) $300

Question 8

If in some year real GDP was $25 billion and the GDP deflator was 68, what was nominal GDP?

Accepted Answer

A) $2.72 billion 
B) $17 billion 
C) $36.8 billion 
D) $43 billion

Question 9

For an economy as a whole, income must equal expenditure because

Accepted Answer

A) the number of firms is equal to the number of households in an economy. 
B) individuals can only spend what they earn each period. 
C) every dollar of spending by some buyer is a dollar of income for some seller. 
D) every dollar of saving by some consumer is a dollar of spending by some other consumer.

Question 10

A good is produced by a firm in 2009, added to the firm's inventory in 2010, and sold to a household in 2010. As a result, on net,

Accepted Answer

A) 2009 GDP increased and 2010 GDP decreased. 
B) 2009 GDP decreased and 2010 GDP increased. 
C) 2009 GDP did not change and 2010 GDP increased. 
D) 2009 GDP increased and 2010 GDP did not change.

Question 11

A movie company makes 500,000 DVDs of one of its latest releases. It sells 300,000 of them before the end of the second quarter, and holds the others in its warehouse. How will the 200,000 unsold DVDs be treated in the GDP statistics?

Accepted Answer

A) Since the DVDs eventually will be bought by consumers, they will be included as consumption in the second quarter. 
B) Since the DVDs were not purchased in the second quarter, they will be counted as an increase in third-quarter GDP. 
C) The DVDs will be counted as a change in inventory in the second quarter and so will be included in second-quarter GDP. 
D) The DVDs will be counted as a change in inventory in the second quarter, and when sold in the third quarter will raise third-quarter GDP.

Question 12

Consumption consists of spending by households on goods and services, with the exception of

Accepted Answer

A) purchases of intangible services. 
B) purchases of durable goods. 
C) purchases of new houses. 
D) spending on education.

Question 13

Consider the following three items of spending by the government: (i) the federal government pays a $500 unemployment benefit to an unemployed person; (ii) the federal government makes a $2,000 salary payment to a Navy lieutenant; (iii) the city of Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street lights in Bozeman. Which of these payments contributes directly to government purchases in the national income accounts?

Accepted Answer

A) only item (i) 
B) only item (ii) 
C) only items (i) and (ii) 
D) only items (ii) and (iii)

Question 14

Which of the following is an example of depreciation?

Accepted Answer

A) falling stock prices 
B) the retirement of several employees 
C) computers becoming obsolete 
D) All of the above are examples of depreciation.

Question 15

One bag of oranges is sold for $6.00 to a company that turns them into juice which is sold to consumers for $12.00. Another bag of oranges is purchased by a grocery store for $6.00 who then sells it to a consumer for $7. Taking these four transactions into account, how much is added to GDP?

Accepted Answer

A) $31 
B) $25 
C) $19 
D) None of the above is correct.

Question 16

Table 10-7
The table below contains data for the country of Togogo. The base year is 1974. $$\begin{array} { c c c } 
\text { Year } & \begin{array} { c } 
\text { Nomintal } \
\text { GDP }
\end{array} & \begin{array} { c } 
\text { CDP } \
\text { Deflatar }
\end{array} \
\hline 1974 & \mathbf { \$ 20 0 0 } & 100 \
1975 & \$ 3000 & 120 \
1976 & \mathbf { \$37 5 0 } & 150 \
1977 & \mathbf { \$ 6 0 0 0 } & 200
\end{array}$$
-Refer to Table 10-7. Which of the following is not correct?

Accepted Answer

A) This economy experienced growth from 1974 to 1975. 
B) This economy experienced growth from 1975 to 1976. 
C) This economy experienced growth from 1976 to 1977. 
D) This economy experienced inflation from 1974 to 1975, from 1975 to 1976, and from 1976 to 1977.

Question 17

Government purchases include spending on goods and services by

Accepted Answer

A) the federal government, but not by state or local governments. 
B) federal and state governments, but not by local governments. 
C) federal, state, and local governments. 
D) federal, state, and local governments, as well as household spending by employees of those governments.

Question 18

Table 10-4
The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown below. The base year is 2008.Prices and Quantities
 $$\begin{array} { c c c c c } 
\text { Year } & \text { Price af Cereal } & \begin{array} { c } 
\text { Quantity af } \
\text { Cereal }
\end{array} & \text { Price af Millz } & \begin{array} { c } 
\text { Quantity df } \
\text { Mill }
\end{array} \
\hline 2008 & \$ 4.00 & 90 & \$ 1.50 & 150 \
2009 & \$ 4.00 & 100 & \$ 2.00 & 180 \
2010 & \$ 5.00 & 120 & \$ 2.50 & 200 \
2011 & \$ 6.00 & 150 & \$ 3.50 & 200
\end{array}$$
-Refer to Table 10-4. This country's inflation rate from 2010 to 2011 was

Accepted Answer

A) 15.4%. 
B) 26.1%. 
C) 45.5%. 
D) 77.8%.

Question 19

Changes in real GDP reflect only changes in the amounts being produced.

Accepted Answer