Question 1

Leakages include any diversion from the domestic spending stream.

Accepted Answer

A) True 
 B)False  True

Question 2

If an economy produces final output worth $5 trillion,then the amount of gross income generated by that production

Accepted Answer

A)   is $5 trillion
B)   is more than $5 trillion
C)   is $5 trillion minus taxes
D)   would be $5 trillion if profits were zero
E)   would be $5 trillion if costs of production were zero A

Question 3

Which of the following is an injection into the circular flow?

Accepted Answer

A)   interest rates
B)   saving
C)   taxes
D)   exports
E)   imports D

Question 4

To accurately measure the growth rate of output between two years,one should use

Accepted Answer

A)   gross domestic product
B)   net domestic product
C)   real net investment
D)   real gross domestic product
E)   disposable income

Question 5

Which of the following would not be included in the measurement of GDP?

Accepted Answer

A)   the spark plugs you bought to tune up your car at home
B)   the government hiring a public relations consultant
C)   any improvements in product or service quality not reflected in a higher price
D)   winning a brand new Chevy truck in a contest
E)   sales of U.S.beef to Scotland

Question 6

Which of the following is a leakage from the circular flow?

Accepted Answer

A)   investment
B)   imports
C)   government purchases
D)   government borrowing
E)   transfer payments

Question 7

Which is true of leakages and injections in the circular flow?

Accepted Answer

A)   Leakages minus injections equal GDP.
B)   Injections minus leakages equal GDP.
C)   Leakages minus injections equal zero in equilibrium.
D)   Domestic leakages must equal domestic injections.
E)   Leakages must be greater than injections for the economy to be growing.

Question 8

Which of the following statements is true regarding leakages and injections?

Accepted Answer

A)   Government transfer payments must equal taxes because one is a leakage and one is an injection.
B)   Imports must equal exports since both are leakages.
C)   Saving must equal investment for the economy to be in equilibrium.
D)   Since leakages equal injections,aggregate income equals aggregate expenditure.
E)   Net taxes are an injection into the circular flow; net exports are a leakage.

Question 9

Because of activity in the underground economy,

Accepted Answer

A)   GDP statistics understate the true volume of economic activity
B)   GDP statistics overstate the true prices in the economy
C)   consumers are not as well off as GDP statistics indicate
D)   firms' profits are higher than GDP statistics indicate
E)   government revenue is higher than GDP statistics indicate

Question 10

The GDP price index

Accepted Answer

A)   involves all final goods and services produced in the economy
B)   is derived from looking at quantities of goods sold rather than at prices
C)   is derived using the prices of only imported and exported goods and services
D)   is derived using the implicit prices of goods and services produced by the government
E)   involves all goods and services sold in the economy

Question 11

The government budget must be balanced in order to have an equilibrium in the circular flow model.

Accepted Answer

A) True 
 B)False

Question 12

Consumption spending is the biggest aggregate expenditure,about

Accepted Answer

A)   one half
B)   three fifths
C)   two fifths
D)   two thirds
E)   seven tenths

Question 13

Nominal GDP is measured in

Accepted Answer

A)   current-year prices
B)   base-year prices
C)   real dollars
D)   quantity of goods produced
E)   hours of employment

Question 14

GDP is a poor measure of social well-being because

Accepted Answer

A)   the value of leisure time is not counted in GDP
B)   revenue earned on U.S.exports is ignored
C)   each dollar of government spending is valued at less than one-half of private spending
D)   consumer spending is more important than business spending and should be considered more valuable
E)   it values products at their market prices but ignores services produced

Question 15

The Lee family won a $50 million jackpot and made several major purchases this year,listed below.Which of these would be counted as investment when calculating GDP by the expenditure approach?

Accepted Answer

A)   the former Hollywood home of Gwyneth Paltrow that they bought for $5 million
B)   the villa they just built in the Swiss Alps for $2 million
C)   the secondhand yacht that Mr.Lee purchased for $1 million and expects to sell for a profit before year's end
D)   the vintage Rolls Royce that Mrs.Lee purchased in London for $500,000
E)   the new house that Mrs.Lee had built in Pittsburgh for $200,000 to serve as living quarters for her ten new servants

Question 16

Which of the following would be included in GDP?

Accepted Answer

A)   payment of the monthly telephone bill by Mr.Laconic
B)   the purchase of corporate stock by Steven Jones
C)   the purchase of a used limousine by Harold Abel
D)   the value of a pair of mittens your mother knitted for you
E)   the $300 George saved because he painted his own garage

Question 17

Louis always knits ten sweaters a year to give as birthday gifts to his nephews.One year,instead of giving the sweaters as gifts,he sells them to a local store for $50 each; his nephews receive no gifts.What is the effect on GDP?

Accepted Answer

A)   GDP increases
B)   GDP decreases
C)   there is no change in GDP
D)   GDP increases only if the $50 sweaters are comparable to store-bought sweaters
E)   GDP increases only if the $50 price is less than the cost of materials

Question 18

If a firm's inventory decreases,the GDP counts the net decrease as a reduction in investment.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is included in GDP as government purchases?

Accepted Answer

A)   Social Security payments to elderly citizens
B)   welfare benefits distributed to the poor
C)   outright grants from government to recipients
D)   payments to clerical workers hired by government
E)   unemployment compensation benefits

Question 20

If a firm hires labor for $6,000,pays rent of $2,000,buys raw materials for $10,000,earns profits of $800,and sells its output for $25,000,the firm's value added is

Accepted Answer

A)   $6,200
B)   $9,000
C)   $15,000
D)   $18,000
E)   $18,800

Exam 7: Tracking the US Economy

Leakages include any diversion from the domestic spending stream.

If an economy produces final output worth $5 trillion,then the amount of gross income generated by that production

Which of the following is an injection into the circular flow?

To accurately measure the growth rate of output between two years,one should use

Which of the following would not be included in the measurement of GDP?

Which of the following is a leakage from the circular flow?

Which is true of leakages and injections in the circular flow?

Which of the following statements is true regarding leakages and injections?

Because of activity in the underground economy,

The GDP price index

The government budget must be balanced in order to have an equilibrium in the circular flow model.

Consumption spending is the biggest aggregate expenditure,about

Nominal GDP is measured in

GDP is a poor measure of social well-being because

The Lee family won a $50 million jackpot and made several major purchases this year,listed below.Which of these would be counted as investment when calculating GDP by the expenditure approach?

Which of the following would be included in GDP?

Louis always knits ten sweaters a year to give as birthday gifts to his nephews.One year,instead of giving the sweaters as gifts,he sells them to a local store for $50 each; his nephews receive no gifts.What is the effect on GDP?

If a firm's inventory decreases,the GDP counts the net decrease as a reduction in investment.

Which of the following is included in GDP as government purchases?

If a firm hires labor for $6,000,pays rent of $2,000,buys raw materials for $10,000,earns profits of $800,and sells its output for $25,000,the firm's value added is