Deck 2: The Measurement and Structure of the National Economy

Question 1

The measurement of GDP includes

A)nonmarket goods such as homemaking and child-rearing.
B)the benefits of clean air and water.
C)estimated values of activity in the underground economy.
D)purchases and sales of goods produced in previous periods.

Answer 1

C

Question 2

Government statisticians adjust GDP figures to include estimates of

A)the value of homemaking (work done within the home).
B)the underground economy.
C)child-rearing services provided by stay-at-home parents.
D)the costs of pollution to society.

Answer 2

B

Question 3

Which of the following is included in U.S.GDP?

A)The sale of a new car from a manufacturer's inventory
B)The purchase of a watch from a Swiss company
C)The sale of a used car
D)A newly constructed house

Answer 3

D

Question 4

The accounting framework used in measuring current economic activity is called

A)the U.S.expenditure accounts.
B)the national income accounts.
C)the flow of funds accounts.
D)the balance of payments accounts.

Question 5

Fred the farmer purchased five new tractors at $20,000 each.Fred sold his old tractors to other farmers for $50,000.The net increase in GDP of these transactions was

A)$50,000.
B)$100,000.
C)$125,000.
D)$150,000.

Question 6

Intermediate goods are

A)capital goods,which are used up in the production of other goods but were produced in earlier periods.
B)final goods that remain in inventories.
C)goods that are used up in the production of other goods in the same period that they were produced.
D)either capital goods or inventories.

Question 7

Describe the three different approaches to measuring the amount of economic activity that occurs during a period of time and explain why they all give identical measurements.

Question 8

The value of a producer's output minus the value of the inputs it purchases from other producers is called the producer's

A)surplus.
B)profit.
C)value added.
D)gross product.

Question 9

Larry's Lathe-makers Limited produces lathes,which are purchased by furniture manufacturers all over the world.The standard lathe depreciates over a twenty-five year period.In the national income accounts,the lathes are classified as

A)inventory.
B)raw materials.
C)capital goods.
D)intermediate goods.

Question 10

The three approaches to measuring economic activity are the

A)cost,income,and expenditure approaches.
B)product,income,and expenditure approaches.
C)consumer,business,and government approaches.
D)private,public,and international approaches.

Question 11

The Bigdrill company drills for oil,which it sells for $200 million to the Bigoil company to be made into gas.The Bigoil company's gas is sold for a total of $600 million.What is the total contribution to the country's GDP from companies Bigdrill and Bigoil?

A)$200 million
B)$400 million
C)$600 million
D)$800 million

Question 12

Marvin's Metal Company produces screws that it sells to Ford,which uses the screws as a component of its cars.In the national income accounts,the screws are classified as

A)inventory.
B)final goods.
C)capital goods.
D)intermediate goods.

Question 13

Sam's Semiconductors produces computer chips,which it sells for $10 million to Carl's Computer Company (CCC).CCC's computers are sold for a total of $16 million.What is the value added of CCC?

A)$6 million
B)$10 million
C)$16 million
D)$26 million

Question 14

The Compagnie Naturelle sells mounted butterflies,using butterfly bait it buys from another firm for $20,000.It pays its workers $35,000,pays $1,000 in taxes,and has profits of $3,000.What is its value added?

A)$3000
B)$19,000
C)$39,000
D)$59,000

Question 15

To what extent are homemaking and child-rearing accounted for in the government's GDP accounts?

A)Not at all
B)Only to the extent that they are provided for pay
C)Only to the extent that taxes are paid on them
D)All homemaking and child-rearing are accounted for

Question 16

The equation total production = total income = total expenditure is called

A)the goods-market equilibrium condition.
B)the total identity.
C)the fundamental identity of national income accounting.
D)Say's Law.

Question 17

Capital goods are

A)a type of intermediate good.
B)final goods,because they are not used up during a given year.
C)produced in the same year as the related final good,whereas intermediate goods are produced in different years.
D)produced in one year,whereas final goods are produced over a period of more than one year.

Question 18

Inventories include each of the following except

A)unsold finished goods.
B)goods in process.
C)raw materials held by firms.
D)office equipment.

Question 19

Because government services are not sold in markets,

A)they are excluded from measurements of GDP.
B)the government tries to estimate their market value and uses this to measure the government's contribution to GDP.
C)they are valued at their cost of production.
D)taxes are used to value their contribution.

Question 20

To ensure that the fundamental identity of national income accounting holds,changes in inventories are

A)treated as part of expenditure.
B)treated as part of saving.
C)ignored.
D)counted as consumption.

Question 21

In a given year,a country's GDP = $9841,net factor payments from abroad = $889,taxes = $869,transfers received from the government = $296,interest payments on the government's debt = $103,consumption = $8148,and government purchases = $185.The country had private saving equal to

A)$285.
B)$3850.
C)$2397.
D)$2112.

Question 22

In the expenditure approach to GDP,which of the following would be excluded from measurements of GDP?

A)Government payments for goods produced by foreign firms
B)Government payments for goods produced by firms owned by state or local governments
C)Government payments for welfare
D)All government payments are included in GDP

Question 23

In the country of Kwaki,people produce canoes,fish for salmon,and grow corn.In one year they produced 5000 canoes using labor and natural materials only,but sold only 4000,as the economy entered a recession.The cost of producing each canoe was $1000,but the ones that sold were priced at $1250.They fished $30 million worth of salmon.They used $3 million of the salmon as fertilizer for corn.They grew and ate $55 million of corn.What was Kwaki's GDP for the year?

Question 24

If C = $500,I = $150,G = $100,NX = $40,and GNP = $800,how much is NFP?

A)-$10
B)-$5
C)$5
D)$10

Question 25

Consumer spending is spending by ________ households on final goods and services produced ________.

A)domestic; domestically and abroad
B)domestic; domestically
C)domestic and foreign; domestically and abroad
D)domestic and foreign; domestically

Question 26

What is the main conceptual difference between GDP and GNP? How different are GDP and GNP for the United States? For countries with many citizens who work abroad?

Question 27

Monica grows coconuts and catches fish.Last year she harvested 1500 coconuts and 600 fish.She values one fish as having a worth of three coconuts.She gave Rachel 300 coconuts and 100 fish for helping her to harvest coconuts and catch fish,all of which were consumed by Rachel.In terms of fish,Monica's income would equal

A)700 fish.
B)900 fish.
C)1100 fish.
D)2700 fish.

Question 28

If an American construction company built a road in Kuwait,this activity would be

A)excluded from U.S.GNP.
B)fully included in U.S.GDP.
C)included in U.S.GNP only for that portion that was attributable to American capital and labor.
D)included in U.S.GDP but not in U.S.GNP.

Question 29

Private disposable income equals

A)GNP - taxes + transfers + interest.
B)NNP - taxes + transfers + interest.
C)national income - taxes + transfers + interest.
D)national income - taxes - transfers + interest.

Question 30

In one year in the country of Countem,workers earned $4150 ,proprieteor's income was $392,rental income was $20,corporate profits were $683,net interest was $228,taxes on production and imports were $329,business current transfer payments were $12,the current surplus of government enterprises was $3,statistical discrepancy was $28,consumption of fixed capital was $882,factor income received from the rest of the world was $331,and payments of factor income to the rest of the world was $623.Based on these data,compute national income,net national product,gross national product,and gross domestic product.

Question 31

GDP differs from GNP because

A)GDP = GNP - net factor payments from abroad.
B)GNP = GDP - net factor payments from abroad.
C)GDP = GNP - capital consumption allowances.
D)GNP = GDP - capital consumption allowances.

Question 32

The value of a household's assets minus the value of its liabilities is called

A)wealth.
B)income.
C)debt.
D)stock.

Question 33

The income-expenditure identity says that

A)Y = C + S + T.
B)Y = C + I + G.
C)Y = C + I + G + NX.
D)Y = C + I + G + NX + CA.

Question 34

Net national product equals

A)gross national product minus statistical discrepancy.
B)gross national product minus depreciation.
C)national income minus taxes on production and imports.
D)national income plus depreciation.

Question 35

Which of the following is not a category of consumption spending in the national income accounts?

A)Consumer durables
B)Nondurable goods
C)Services
D)Housing purchases

Question 36

Citizens of the country of Heehaw produce hay and provide entertainment services (banjo playing).In one year they produced $15 million worth of hay,with $11 million consumed domestically and the other $4 million sold to neighboring countries.They provided $7 million worth of banjo-playing services,$5 million in Heehaw,and $2 million in neighboring countries.They purchased $6 million worth of soda pop from neighboring countries.
Calculate the magnitudes of GNP,GDP,net factor payments from abroad,net exports,and the current account balance.

Question 37

Nations such as Egypt and Turkey may have wide differences between GNP and GDP because both the countries

A)have a high level of imports and exports relative to GNP.
B)have a large portion of their GNP produced by multinational corporations.
C)have a large number of citizens working abroad.
D)purchase large amounts of military wares from other countries.

Question 38

Monica grows coconuts and catches fish.Last year she harvested 1500 coconuts and 600 fish.She values one fish as having a worth of three coconuts.She gave Rachel 300 coconuts and 100 fish for helping her to harvest coconuts and catch fish,all of which were consumed by Rachel.Monica consumed the remaining fish and coconuts.In terms of fish,total consumption by both Monica and Rachel would equal

A)700 fish.
B)900 fish.
C)1100 fish.
D)2700 fish.

Question 39

Carl's Computer Center sells computers to business firms.Businesses then use the computers to produce other goods and services.Over the past year,sales representatives were paid $3.5 million,$0.5 million went for rent on the building,$0.5 million went for taxes,$0.5 million was profit for Carl,and $10 million was paid for computers at the wholesale level.What was the firm's total contribution to GDP?

Question 40

In a given year,a country's GDP = $9841,net factor payments from abroad = $889,taxes = $869,transfers received from the government = $296,interest payments on the government's debt = $103,consumption = $8148,and government purchases = $185.The country had government saving equal to

A)$285.
B)$3850.
C)$2397.
D)$2112.

Question 41

National saving equals private saving plus government saving,which in turn equals

A)C + S + T.
B)GDP + C + G.
C)GDP + NFP.
D)GDP + NFP - C - G.

Question 42

Currently,the U.S.national income and product accounts (NIPA)use what type of price index to calculate real GDP?

A)Fixed-weight
B)Variable-weight
C)Chain-weight
D)Heavy-weight

Question 43

Nominal personal consumption expenditures in the United States were $1760.4 billion in 1980 and rose to $3839.3 billion in 1990.The price index for personal consumption expenditures was 58.5 for 1980 and 92.9 for 1990,where 1992 was the base year.Calculate the percent change in real personal consumption expenditures (rounded to the nearest percentage point)in the decade.

A)37%
B)59%
C)118%
D)137%

Question 44

If the price index was 100 in 2000 and 120 in 2010,and nominal GDP was $360 billion in 2000 and $480 billion in 2010,then the value of 2010 GDP in terms of 2000 dollars would be

A)$300 billion.
B)$384 billion.
C)$400 billion.
D)$424 billion.

Question 45

In the mid-to-late 1980s,the United States had "twin deficits" because both ________ and ________ were negative.

A)government saving; private saving
B)saving; investment
C)the current account; investment
D)government saving; the current account

Question 46

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon. Between Year 1 and Year 2,the percent change in real GDP (based on Year 1 as a base year)was

A)58%.
B)60%.
C)130%.
D)190%.

Question 47

If nominal GDP for 2009 is $6400 billion and real GDP for 2010 is $6720 billion (in 2005 dollars),then the growth rate of real GDP is

A)0%.
B)0.5%.
C)5%.
D)50%.

Question 48

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon. Between Year 1 and Year 2,the GDP deflator (based on Year 1 as a base year)rose

A)60.00%.
B)81.25%.
C)83.33%.
D)123.00%.

Question 49

If a local government collects taxes of $500,000,has $350,000 of government consumption expenditures,makes transfer payments of $100,000,and has no interest payments or investment,its budget would

A)show a surplus of $150,000.
B)show a surplus of $50,000.
C)be in balance with neither a surplus nor a deficit.
D)show a deficit of $50,000.

Question 50

The uses-of-saving identity says that an economy's private saving is used for

A)investment,interest expenses,and the government budget deficit.
B)investment,the government budget deficit,and the current account.
C)investment,interest expenses,the government budget deficit,and the current account.
D)investment,interest expenses,the government budget deficit,transfer payments,and the current account.

Question 51

In a given year,a country's GDP = $3843,net factor payments from abroad = $191,taxes = $893,transfers received from the government = $422,interest payments on the government's debt = $366,consumption = $3661,and government purchases = $338.Calculate the values of private saving,government saving,and national saving.

Question 52

The value of real GDP in the current year equals

A)the value of current-year output in prices of the base year.
B)the value of current-year output in prices of the current year.
C)the value of base-year output in prices of the base year.
D)the value of base-year output in prices of the current year.

Question 53

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon. Between Year 1 and Year 2,nominal GDP grew by

A)60.0%.
B)65.5%.
C)83.3%.
D)190.0%.

Question 54

Suppose that national saving is $1456 billion,investment is $1945 billion,and private saving is $1590 billion.How much is the current account balance?

A)$489 billion
B)$221 billion
C)-$221 billion
D)-$489 billion

Question 55

In a given year,a country's GDP = $9841,net factor payments from abroad = $889,taxes = $869,transfers received from the government = $296,interest payments on the government's debt = $103,consumption = $8148,and government purchases = $185.The country had private saving equal to

A)$285.
B)$3850.
C)$2397.
D)$2112.

Question 56

How does chain weighting lead to a different measurement of real GDP than the methods used by the BEA prior to 1996? What are the advantages of chain weighting? What are the disadvantages?

Question 57

Suppose that private saving is $1590 billion,investment is $1945 billion,and the current account balance is -$489 billion.From the uses-of-saving identity,how much is government saving?

A)-$134 billion
B)-$844 billion
C)$844 billion
D)$134 billion

Question 58

The government budget surplus equals

A)government purchases plus transfers.
B)government receipts minus government outlays.
C)government purchases minus net receipts.
D)government purchases minus transfers.

Question 59

Nominal GDP in 1970 was $1,035.6 billion,and in 1980 it was $2,784.2 billion.The GDP price index was 30.6 for 1970 and 60.4 for 1980,where 1992 was the base year.Calculate the percent change in real GDP in the decade from 1970 to 1980.Round off to the nearest percentage point.

A)36%
B)97%
C)136%
D)169%

Question 60

The uses-of-saving identity shows that if the government budget deficit rises,then one of the following must happen.

A)Private saving must rise,investment must fall,and/or the current account must fall.
B)Private saving must rise,investment must fall,and/or the current account must rise.
C)Private saving must rise,investment must rise,and/or the current account must fall.
D)Private saving must fall,investment must rise,and/or the current account must rise.

Question 61

The consumer price index (CPI)was 180 for 2009 when using 1995 as the base year (1995 = 100).Now suppose we switch and use 2009 as the base year (2009 = 100).What is the CPI for 1995 with the new base year?

A)18.0
B)55.6
C)80.0
D)111.2

Question 62

The country of Myrule has produced the following quantity of gauges and potatoes,with the price of each listed in dollar terms. (a)Using Year 1 as the base year,what is the growth rate of real GDP from Year 1 to Year 2?
(b)Based on the GDP deflator,what is the inflation rate from Year 1 to Year 2?

Question 63

In 1975,Richard Petty won the NASCAR race in Richmond,earning $6,265.In 2006,Dale Earnhardt,Jr.,won the race,earning $239,166.The CPI index was 52.5 in 1975 and 198.7 in 2006 (base year = 1982-1984).Calculate the real earnings (based on base year 1982-1984)of both Petty and Earnhardt.

Question 64

A disadvantage of chain-weighting is that

A)past inflation rates change whenever the base year changes.
B)past growth rates of real GDP change whenever the base year changes.
C)it causes output growth to slow.
D)the components of real GDP don't sum to real GDP.

Question 65

The expected real interest rate (r)is equal to

A)nominal interest rate minus inflation rate.
B)nominal interest rate minus expected inflation rate.
C)expected nominal interest rate minus inflation rate.
D)nominal interest rate plus expected inflation rate.

Question 66

By Marks buys a one-year German government bond (called a bund)for $400.He receives principal and interest totaling $436 one year later.During the year the CPI rose from 150 to 162.The nominal interest rate on the bond was ________,and the real interest rate was ________.

A)9%; 1%
B)9%; -1%
C)36%; 24%
D)36%; 12%

Question 67

Nominal gross private domestic investment was $1888.0 billion in 2008 and rose to $2057.4 billion in 2009.The chain-weight price index for gross private domestic investment was 106.6 for 2008 and 110.3 for 2009,where 2005 was the base year.Calculate the percent change in real gross private domestic investment (rounded to the nearest percentage point)from 2008 to 2009.

A)1%
B)3%
C)4%
D)5%

Question 68

In 2008,expected inflation exceeded inflation.In 2009,inflation exceeded expected inflation.Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real interest rate was ________ than the expected real interest rate in 2009.

A)less; less
B)less; greater
C)greater; less
D)greater; greater

Question 69

The CPI may overstate inflation for all the following reasons except

A)problems measuring changes in the quality of goods.
B)substitution by consumers towards cheaper goods.
C)problems measuring the quality of services.
D)changes in Social Security benefits.

Question 70

In 2008,inflation exceeded expected inflation.In 2009,expected inflation exceeded inflation.Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real interest rate was ________ than the expected real interest rate in 2009.

A)less; less
B)less; greater
C)greater; less
D)greater; greater

Question 71

If the price index last year was 1.0 and today it is 1.4,what is the inflation rate over this period?

A)-4%
B)1.4%
C)4%
D)40%

Question 72

The nominal interest rate minus the inflation rate is the

A)depreciation rate.
B)real interest rate.
C)discount rate.
D)forward rate.

Question 73

The Boskin Commission concluded that the CPI overstates increases in the cost of living by ________ percentage point(s)per year.

A)Less than 1
B)1 to 2
C)About 3
D)Over 4

Question 74

The U.S.inflation rate ________ in the 1960s and 1970s,________ in the 1980s,and ________ in the 1990s and 2000s.

A)was steady; rose sharply; fell
B)was steady; rose sharply; remained high
C)rose; fell sharply; remained low
D)rose; fell sharply; rose again

Question 75

Nominal government purchases were $2226.2 billion in 2008 and rose to $2372.8 billion in 2009.Real government purchases were $1940.6 for 2008 and $1958.0 for 2009,where 2005 was the base year.Calculate the percent change in the chain-weight price index for government purchases (rounded to the nearest percentage point)from 2008 to 2009.

A)2%
B)4%
C)6%
D)8%

Question 76

Two years ago,the GDP deflator for Old York was 300,and today it is 330.75.Based on this information the annual average inflation rate for the two years was

A)5%.
B)5.125%.
C)10%.
D)10.25%.

Question 77

What is the difference between nominal and real economic variables? Why do economists tend to concentrate on changes in real magnitudes?

Question 78

By how much does the CPI overstate true increases in the cost of living,according to the Boskin Commission? What are the main reasons for this bias in the CPI? What are the economic implications of the bias?

Question 79

The Fed prefers to focus on inflation based on which price index?

A)personal consumption expenditures price index
B)consumer price index
C)GDP deflator
D)producer price index

Question 80

You are given information on the consumer price index (CPI),where the values given are those for December 31 of each year. In which year was the inflation rate the highest?

A)2006
B)2007
C)2008
D)2009