House constructed in 2005 he paid 200,000 for a brand new house. he sold the house in 2006 for 225,000 what GDP/GNP is affected
The 2006 sale affected neither 2005 GDP nor 2006 GDP.
American company operates a business in Ireland what GDP/GNP is affected
The value of the goods and services produced by the pharmaceutical company is included in Irish GDP, but not in Irish GNP.
If a nations GDP rises then it must be a case that the nations
Income and expenditure both rise
GDP is defined as
The market value of all final goods and services produced within a country in a given period of time, regardless of the nationality of the owners of the factors of production
Over the last few decades, Irish people have chosen to cook less at home and more in restaurants. This change in behaviour by itself has
Increased measured GDP only to the value of the restaurant meals exceeded the value of meals previously cooked at home
Consumption consists of spending by households on goods and services, with the exception of
Purchases of new houses
Which of the following are better gauges of economic well being between nominal GDP and real GDP.
Real GDP is a better gauge of economic well-being than is nominal GDP.
When economists talk about growth in the economy, they measure that growth with the
percentage change in real GDP.
If the GDP deflator is 200 and nominal GDP is ˆ10,000 billion, then real GDP is
Real GDP = Nominal GDP/GDP deflator X 100
Real GDP = 10,000/ 200 X 100
Real GDP = 5,000
GDP is the market value of all final goods and services produced by a country’s citizens in a given period of time.
a. TRUE
b. FALSE
B
GDP excludes the value of intermediate goods because their value is included in the value of final goods.
a. TRUE
b. FALSE
A
GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because
A. these items are not reported on income tax forms.
B. the government wants to discourage the production and consumption of these items.
C. measuring them is so difficult.
D. the quality of these items is not high enough to contribute value to GDP
C
In a simple circular-flow diagram, firms
A. purchase resources from households.
B. purchase the output produced by households.
C. receive income by selling resources to households.
D. All of the above are correct
A
5. aplia
aplia
The government’s purchases of goods but not its purchases of services are included in GDP.
a. TRUE
b. FALSE
B
Gross domestic product measures
A. income and expenditures.
B. expenditures but not income.
C. income but not expenditures.
D. neither income nor expenditures
A
Social Security payments are
A. excluded from GDP because they are not private pensions.
B. excluded from GDP because they do not reflect the economy’s production.
C. included in GDP because they represent current income.
D. included in GDP because they represent potential consumption.
B
After the terrorist attacks on September 11, 2001, governments within the United States raised expenditures to increase security at airports. These purchases of goods and services are
A. not included in GDP since the government collects taxes to pay for them.
B. included in GDP since government expenditures on goods and services are included in GDP.
C. not included in GDP since they do not represent production.
D. included in GDP only to the extent that the federal government, rather than state or local governments, paid for them
B
GDP
A. is not used to monitor the performance of the overall economy but is the single best measure of a society’s economic well-being.
B. is not used to monitor the performance of the overall economy and is not the single best measure of a society’s economic well-being.
C. is used to monitor the performance of the overall economy but is not the single best measure of a society’s economic well-being.
D. is used to monitor the performance of the overall economy and is the single best measure of a society’s economic well-being.
D
ASKIn 2014, a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company. Big Flakes Cereal Company produces $8 million worth of cereal in 2014, with sales to households during the year of $7 million. The unsold $1 million worth of cereal remains in Big Flake Cereal Company’s inventory at the end of 2014. The transactions just described contribute how much to GDP for 2014?
A. $3 million
B. $8 million
C. $11 million
D. $7 million
B
12. APLIA
APLIA
Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is
A. included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself.
B. included in GDP if Susan changes it herself, but not if she pays Speedy Lube to change it.
C. included in GDP whether Susan pays Speedy Lube to change it or changes it herself.
D. not included in GDP whether Susan pays Speedy lube to change it or she changes it herself.
A
Disposable personal income is the income that
A. households and noncorporate businesses have left after paying taxes and non-tax payments to the government.
B. households have left after paying taxes and non-tax payments to the government.
C. businesses have left after paying taxes and non-tax payments to the government.
D. households and businesses have left after paying taxes and non-tax payments to the government.
A
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
A. GNP which is smaller than GDP in country A.
B. GDP which is smaller than GNP in country A.
C. GNP which is larger than GDP in country A.
D. GDP which is larger than GNP in country A.
C
The inflation rate is the
A. absolute change in real GDP from one period to another.
B. percentage change in real GDP from one period to another.
C. absolute change in the price level from one period to another.
D. percentage change in the price level from one period to another
D
The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,
A. U.S. government purchases, net exports, and GDP are unaffected.
B. U.S. government purchases are unaffected; U.S. net exports decrease by $30,000; and U.S. GDP decreases by $30,000.
C. U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP is unaffected.
D. U.S. government purchases increase by $30,000; U.S. net exports are unaffected; and U.S. GDP increases by $30,000
C
An American company operates a fast food restaurant in Paris, France. Which of the following statements is accurate?
A. The value added by American workers and equipment in France is included in U.S. GDP and the value added by French workers and equipment is added to French GDP.
B. The value of the goods and services produced by the restaurant is included in French GDP, but not in U.S. GDP.
C. The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in French GDP.
D. The value of the goods and services produced by the restaurant is included in both French GDP and U.S. GDP
B
The Carters’ oldest son attends Big State University. He and his parents pay all his fees and tuition. These payments count in GDP as
A. investment.
B. consumption of durable goods.
C. government spending.
D. consumption of services
D
National income is defined as
A. the total income of a nation’s permanent residents minus losses from depreciation.
B. the total income earned by a nation’s permanent residents in the production of goods and services.
C. the income that households and noncorporate businesses have left after satisfying all their obligations to the government.
D. the income that households and noncorporate businesses receive.
B
In the economy of Talikastan in 2015, consumption was $700, exports were $200, government purchases were $300, imports were $150, and investment was $400. What was Talikastan’s GDP in 2015?
A. $1350
B. $1050
C. $1750
D. $1450
D
Which government entity computes U.S. GDP every three months?
A. the Department of Commerce
B. the Council of Economic Advisers
C. the Department of Treasury
D. the Federal Reserve
A
The government computes measures of income other than GDP because these other measures usually tell different stories about overall economic conditions.
a. TRUE
b. FALSE
B
Macroeconomic statistics tell us about a particular household, firm, or market.
a. TRUE
b. FALSE
B
25. aplia very important
aplia
Which of the following statements regarding GDP is correct?
A. GDP includes factory production, but not any harm that may be inflicted on the environment.
B. GDP accounts for all activities taking place outside markets.
C. GDP provides detailed information about the distribution of income.
D. GDP is a good measure of economic well-being for all purposes.
A
Suppose that an economy produces 20,000 units of good A which sells at $3 a unit and 40,000 units of good B which sells at $1 per unit. Production of good A contributes
A. 2/3 times as much to GDP as production of good B.
B. 3/2 times as much to GDP as the production of good B.
C. 3 times as much to GDP as the production of good B.
D. 1/3 times as much to GDP as the production of good B
B
Which of the following is included in GDP?
A. neither the market value of owner-occupied housing services nor the market value of rental housing services.
B. the market value of rental housing services, but not the market value of owner-occupied housing services.
C. both the market value of rental housing services and the market value of owner-occupied housing services
D. the market value of owner-occupied housing services, but not the market value of rental housing services
C
29. aplia
aplia
Changes in the GDP deflator reflect
A. both changes in prices and changes in the amounts being produced.
B. neither changes in prices nor changes in the amounts being produced.
C. only changes in the amounts being produced.
D. only changes in prices.
D
When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study
A. nominal GDP.
B. the GDP deflator.
C. GNP.
D. real GDP.
D
Consumption consists of spending by households on goods and services, with the exception of
A. purchases of new houses.
B. purchases of intangible services.
C. spending on education.
D. purchases of durable goods
A
The government purchases component of GDP includes salaries paid to soldiers but not Social Security benefits paid to the elderly.
a. TRUE
b. FALSE
A
The residents of Ireland earn $200 million of income from abroad. Residents of other countries earn $300 million in Ireland. Therefore, Ireland’s
A. net factor payments from abroad are positive, and its GNP is larger than its GDP.
B. net factor payments from abroad are negative, and its GDP is larger than its GNP.
C. net factor payments from abroad are negative, and its GNP is larger than its GDP.
D. net factor payments from abroad are positive, and its GDP is larger than its GNP
B
The value of goods added to a firm’s inventory in a certain year is treated as
A. spending on durable goods, since the goods could not be inventoried unless they were durable.
B. investment, since GDP aims to measure the value of the economy’s production that year.
C. consumption, since the goods will be sold to consumers in another period.
D. intermediate goods, and so is not included in that year’s GDP.
B
Suppose an economy produces only cheese and fish. In 2010, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. In 2009, the base year, the price of cheese was $10 per unit and the price of fish was $75 per unit. For 2010,
A. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5.
B. nominal GDP is $800, real GDP is $500, and the GDP deflator is 160.
C. nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5.
D. nominal GDP is $500, real GDP is $800, and the GDP deflator is 160.
A
If real GDP doubles and the GDP deflator doubles, then nominal GDP
A. doubles.
B. triples.
C. remains constant.
D. quadruples.
D
Which of the following is included in the consumption component of U.S. GDP?
A. purchases of natural gas by U.S. households
B. purchases of newly constructed homes by U.S. households
C. purchases of staplers, paper clips, and pens by U.S. business firms
D. All of the above are correct.
A
39. aplia
aplia
The GDP deflator for years subsequent to the base year measures the change in
A. real GDP from the base year that cannot be attributable to a change in nominal GDP.
B. real GDP from the base year that cannot be attributable to a change in prices.
C. nominal GDP from the base year that cannot be attributable to a change in real GDP.
D. nominal GDP from the base year that cannot be attributable to a change in prices.
C
41.
At a rummage sale, you buy two old books and an old rocking chair; your spending on these items is not included in current GDP.
a. TRUE
b. FALSE
A
42.
The purchase of rice produced this period is included in GDP if the rice is
A. used in a meal a restaurant sells during the same period they buy the rice.
B. purchased by a family who uses it to make tuna casserole for its supper.
C. purchased by a frozen food company to increase its inventory.
D. B and C are correct
D
Suppose the government passes a law eliminating holidays and, as a result, the production of goods and services increases because people work more days per year (and thus enjoy less leisure per year). Based on this scenario, which of the following statements is correct?
A. GDP could either increase or decrease because GDP includes leisure.
B. GDP could either increase or decrease because GDP excludes leisure.
C. GDP would definitely increase, despite the fact that GDP includes leisure.
D. GDP would definitely increase because GDP excludes leisure.
D
44. aplia
aplia
45.
In a simple circular-flow diagram, total income and total expenditure are
A. never equal because total income always exceeds total expenditure.
B. equal only when the government purchases no goods or services.
C. always equal because every transaction has a buyer and a seller.
D. seldom equal because of the ongoing changes in an economy’s unemployment rate.
C
46. aplia
aplia
Which of the following is correct?
A. Nominal GDP is always less than real GDP.
B. Nominal GDP is always greater than real GDP.
C. Nominal GDP equals real GDP in the base year.
D. Nominal GDP equals real GDP in all years but the base year.
C
Changes in the GDP deflator reflect only changes in the prices of goods and services.
a. TRUE
b. FALSE
A
Changes in nominal GDP reflect
A. only changes in the amounts being produced.
B. both changes in prices and changes in the amounts being produced.
C. only changes in prices.
D. neither changes in prices nor changes in the amounts being produced.
B
50. ask
Which of the following is included in the calculation of GDP?
A. The purchase of ink and paper supplies by a textbook company for the production of new textbooks.
B. The purchase of a new edition of a foreign textbook that was produced in a different nation.
C. The purchase of a used textbook from a friend who took the same class last year.
D. The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.
D
An American buys a pair of shoes manufactured in Italy. How do the U.S. national income accounts treat the transaction?

Net exports and GDP both rise.
Net exports and GDP both fall.
Net exports fall, while GDP is unchanged.
Net exports are unchanged, while GDP rises

C
Which is the largest component of GDP?

consumption
investment
government purchases
net exports

A
1. macroeconomists study
economy-wide phenomena
2. which of the following newspaper headlines is more closely related to what microeconomists study than to what macroeconomists study?
the price of oranges rises after an early frost
3. which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?
the percentage of the labor force that is out of work, and differences in average income from country to country
4. the basic tools of supply and demand are
central to macroeconomic analysis as well as to microeconomic analysis
5. which of the following statistics is usually regarded as the best single measure of a society’s economic well-being?
gross domestic product
6. gdp
is used to monitor the performance of the overall economy and is the single best measure of a society;s economic well-being
7. gross domestic product measures
income and expenditure
8. expenditures on a nation’s domestic production
are equal to its domestic production
9. for an economy as a whole
income must equal expenditure
10. which of the following statements about gdp is correct?
all of the above are correct
(gdp measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services
money continuously flows from households to firms and then back to households, and gdp measures flow of money
gdp is generally regarded as the best single measure of a society’s economic well-being)
11. if an economy’s gdp falls, then it must be the case that the economy’s
income and expenditures both fall
12. in a simple circular-flow diagram, total income and total expenditure are
always equal because every transaction has a buyer and a seller
13. in a simple circular-flow diagram
all of the above are correct
(households spend all of their income
all goods and services are bought by households
expenditures flow through the markets for goods and services, while income flows through the markets for the factors of production)
14. in a simple circular-flow diagram, households buy goods and services whit the income they get from
all of the above are correct
(wages
rents
profits)
15. gdp is defined as the
value of all final goods and services produced within a country in a given period of time
16. gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. to do this, gdp makes use of
market pices
17. in computing gdp, market prices are used to value final goods and services because
market prices reflect the values of goods and services
18. which of the following is included in gdp
both the market value of rental housing services and the market value of owner-occupied housing services
19. the value of the housing services provided by the economy’s owner-occupied houses is
included in the gdp, and the estimated rental values of the house are used to place a value on these housing services
20. most goods and services produced at home
and most goods and services produced illegally are excluded from gdp
21. a newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. based on this information gdp most likely
decreased
22. how is net national product (NNP) calculated
depreciation losses are subtracted from the total income of a nation’s citizens
23. which of the following is an example of depreciation
computers becoming obsolete
24. national income is defined as
the total income earned by a nation’s permanent residents in the production of goods and services
25. the income that households and noncorporate businesses receive
personal income
26. disposable personal income is the income that
households and noncorporate businesses have left after paying taxes and non-tax payments to the government
27. disposable income is
it does not matter much which measure we use
28. in the equation Y=C+I+G+NX
Y represents the economy’s total expenditure
29. the consumption component of gdp includes spending on
durable goods, nondurable goods, and services
30. consumption consists of spending by households on goods and services, with the exception of
purchases of new houses
31. when economists refer to intangible items, they are referring to such things as
hair styling and dental care, and the value of such items is included in GDP
32. household spending on education is included in
consumption, although it might be argued that it would fit better in investment
33. household spending on education is counted in which component or subcomponent of gdp
consumption of services
34. which of the following is included in the consumption component of us gdp
purchases of natural gas by us households
35. which of the following is included in the investment component of gdp?
all of the above are correct
(households’ purchases of newly constructed homes
net additions to firms’ inventories
firms’ purchases of capital equipment)
36. which of the following examples of household spending is categorized as investment rather than consumption
expenditures on new housing
37. which of the following items is the one type of household expenditure that is categorized as investment rather than consumption
the purchase of a new house
38. which of the following is included in the investment component of gdp?
all of the above are included in the investment component
(spending to build new houses
spending to build new factories
spending on business equipment such as welding equipment)
39. Which of the following is included in the investment component of GDP?
spending on new residential construction but not spending on stocks and bonds
40. The value of goods added to a firm’s inventory in a certain year is treated as
investment, since GDP aims to measure the value of the economy’s production that year
41. Consumer goods that are produced, go into inventory, and are not sold during the current period are
included in current period GDP as inventory investment
42. Government purchases include spending on goods and services by
federal, state, and local governments
43. Which of the following items is counted as part of government purchases?
all of the above are correct
(The federal government pays the salary of a Navy officer.
The state of Nevada pays a private firm to repair a Nevada state highway.
The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.)
44. If total spending rises from one year to the next, then
either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both
45. Changes in nominal GDP reflect
both changes in prices and changes in the amounts being produced
46. Changes in real GDP reflect
only changes in the amounts being produced
47. Real GDP is the yearly production of final goods and services valued at
constant prices
48. If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP?
$10 trillion
49. If in some year nominal GDP was $20 billion and the GDP deflator was 50, what was real GDP?
$40 billion
50. If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP deflator ?
250
51. Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that
one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931
52. The consumer price index is used to
monitor changes in the cost of living over time
53. When the consumer price index rises, the typical family
has to spend more dollars to maintain the same standard of living
54. Economists use the term inflation to describe a situation in which
the economy’s overall price level is rising
55. When the overall level of prices in the economy is increasing, economists say that the economy is experiencing
inflation
56. The economy’s inflation rate is the
percentage change in the price level from the previous period
57. Which of the following is correct?
The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers
58. The CPI is a measure of the overall cost of
the goods and services purchased by a typical consumer
59. The CPI is a measure of the overall cost of the goods and services bought by
a typical consumer
60. The inflation rate is calculated
by determining the percentage increase in the price index from the preceding period
61. The inflation rate is calculated
by determining the percentage change in the price index from the preceding period
62. If 2004 is the base year, then the inflation rate for 2005 equals
(CPI in 2005 – CPI in 2004)/(CPI in 2004) x100
63. Refer to Table 11-1. The cost of the basket in 2005 was
$200
64. Refer to Table 11-1. The cost of the basket in 2006 was
$240
65. Refer to Table 11-1. If 2005 is the base year, then the CPI for 2005 was
100
66. Refer to Table 11-1. If 2005 is the base year, then the CPI for 2006 was
120
67. Refer to Table 11-1. If 2006 is the base year, then the CPI for 2005 was
83.3
68. Refer to Table 11-1. If 2006 is the base year, then the CPI for 2006 was
100
69. Refer to Table 11-1. If 2005 is the base year, then the inflation rate in 2006 was
20 percent
70. Refer to Table 11-1. If 2006 is the base year, then the inflation rate in 2006 was
20 percent
71. The primary purpose of measuring the overall level of prices in the economy is to
allow for the comparison of dollar figures from different points in time
72. Babe Ruth’s 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. Ruth’s 1931 salary was equivalent to a 2009 salary of about
$1,128,947
73. When we express Babe Ruth’s 1931 salary in today’s dollars and compare his salary to those of current New York Yankee players, we find that the current median salary of today’s Yankees is
more than four times Ruth’s salary
74. In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. President Hoover’s 1931 salary was equivalent to a 2009 salary of about
$1,058,388
75. You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today’s prices?
five cents (today’s CPI / 1962 CPI)
x

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