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Chapter 24

Measuring the Wealth of Nations

Multiple Choice Questions

1. One of the economic changes that has most dramatically reshaped the world is:

A. the rapid growth of China's economy.

B. the rapid decline of Haiti's economy.

C. the unemployment rate declining in the U.S. by 40 percent.

D. the rapid growth of Italy's economy.

2. In 1978, China was the world's 15th-largest economy. By 2011, China:

A. had the second-largest economy in the world.

B. had a larger economy than Japan.

C. had an economy worth about $6 trillion.

D. All of these statements are true.

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McGraw-Hill Education.


3. The two largest economies in the world in 2012 were:

A. the U.S. and China.

B. Japan and the U.S.

C. England and the U.S.

D. the U.S. and Germany.

4. Economic growth can:

A. create jobs.

B. reduce poverty.

C. improve standards of living.


5. In China, the fraction of the population living below the international poverty line

($1.25 per person per day) fell from over 80 percent in 1978 to:

A. under 20 percent as of 2011.

B. under 50 percent as of 2011.

C. under 40 percent as of 2011.

D. under 30 percent as of 2011.




6. Calculating the value of an economy is harder than just adding up the value of every single thing that is produced because:

A. that would lead to overcounting, as the value of intermediate products would be counted twice.

B. that would lead to overcounting, as there is a mark-up in everything that is sold.

C. that would lead to undercounting, as most goods are not sold in retail markets.

D. that would lead to undercounting, as only observable markets can be recorded.

7. The system we use to measure the value of an economy is called:

A. national income accounting.

B. national economic valuation.

C. macroeconomic summation.

D. national expenditure accounting.

8. Macroeconomics works to explain things like:

A. economic growth.

B. unemployment rates.

C. rates of inflation.





9. Measuring the national income accounts can be helpful in explaining things like:

A. unemployment rates.

B. economic booms.



10. The field of macroeconomics studies ______ and microeconomics studies ______.

A. economic aggregates; individual markets

B. individual markets; economic aggregates

C. international variables; variables within a single economy

D. variables within a single economy; international variables

11. In macroeconomics, which of the following topic would likely be studied?

A. Bob's budget

B. Nike's costs of production

C. The growth rate of the oil industry

D. All of these are microeconomic topics.




12. In macroeconomics, we talk about:

A. consumption at a national level.

B. production of all goods in the economy.

C. prices in the aggregate.

D. All of these are things macroeconomists talk about.

13. Everyone in an economy tends to do better when we experience:

A. high economic growth, low unemployment, and high inflation.

B. steady economic growth, low unemployment, and stable prices.

C. steady economic growth, high unemployment, and stable prices.

D. high economic growth, high unemployment, and low inflation.

14. The most commonly used metric for measuring the value of a national economy is:

A. gross domestic product, or GDP.

B. gross national product, or GNP.

C. gross national income, or GNI.

D. gross domestic income, or GDI.




15. GDP:

A. gives us a sense of the well-being of the average person in a country.

B. allows us to gauge the direction an economy is headed when we examine changes in GDP over time.

C. measures the value of a national economy.


16. We can measure the status of a national economy by looking at:

A. its total expenditures.

B. its total income.

C. We can look at either of these things to get the same measure.

D. Neither of these is used to measure a nation's economic status.

17. Gross domestic product is:

A. the sum of the market values of all final goods and services produced within a country in a given period of time.

B. the sum of the market values of all intermediate goods and services produced within a country in a given period of time.

C. the sum of all final goods and services produced by a country's citizens in a given period of time.

D. the sum of the market values of all final goods and services produced by a country's citizens in a given period of time.




18. GDP uses the market value of goods and services because:

A. it provides a common valuation that allows us to compare one economy to another.

B. it provides the opportunity to compare lists of outputs to see who produced more.

C. it is the only data that can be gathered about goods and services.

D. None of these statements is true.

19. GDP counts:

A. only final goods and services, because otherwise certain things would be double-counted and the GDP would be overestimated.

B. only intermediate goods and services, because those are easier to track.

C. both intermediate and final goods and services because it is important to capture all values, regardless of which market they take place in.

D. those values that are reported to the government.

20. Intermediate goods and services are:

A. used only as inputs to produce something else and are not counted in GDP.

B. goods that consumers buy in parts—like a new tire for their car—and are included in GDP.

C. used only as inputs to produce something else and are counted in GDP.

D. goods that consumers buy in parts—like a new tire for their car—and are not included in GDP.




21. An example of an intermediate good would be:

A. the rice used to make Chex cereal.

B. a bag of Uncle Ben's rice sold to consumers.

C. a bag of Quaker's rice cakes sold to consumers.

D. All of these are intermediate goods.

22. Which of the following is an intermediate good?

A. Tomatoes grown in your garden that you use to make salsa

B. Tomatoes you buy at a local farmer's stand that you use to make salsa

C. Tomatoes sold in the grocery store that you use to make salsa

D. None of these is an intermediate good.

23. Which of the following is not an intermediate good?

A. Tires purchased by Ford to put on their new Explorers

B. Tires sold by Goodyear to put on your Explorer

C. Tomatoes used by Ortega to make their salsa





24. An example of a final good is:

A. chocolate chips purchased by Nabisco to make Keebler chocolate chip cookies.

B. chocolate chips purchased by you to make chocolate chip cookies.

C. chocolate chips purchased by a restaurant to make a chocolate chip cookie pie to sell.

D. All of these are final goods.

25. An example of a final good or service is:

A. a tire to replace your flat.

B. a new car.

C. getting the oil changed in your car.

D. All of these are final goods or services.

26. Which of the following is not a final good or service?

A. A gallon of milk for your breakfast cereal

B. A notebook for your college courses

C. The cheese on the pizza you bought from Domino's






A. Coffee grounds you use to make your coffee every morning

B. Coffee grounds used by a coffee shop to make your coffee every morning

C. Coffee grounds used by Edy's to make coffee ice cream

D. None of these is a final good or service.

28. Intermediate goods are not included in GDP because:

A. certain goods that are used in the production of a final good would be counted twice.

B. the value of goods bought by producers to make something else would be counted twice.

C. the value of goods used by firms to make the goods they sell is included in the firm's product; accounting for the value twice would overestimate GDP.


29. A Chinese restaurant buys 10 cups rice for $1; soy, fish and oyster sauces for $1

each; and assorted vegetables for $20. They create 10 meals with these ingredients and sell each one for $5. How much does this process contribute to GDP?

A. $23

B. $50

C. $73

D. $27




30. You purchase a bag of chocolate chips for $3, a bag of flour for $1, a bag of sugar for $.50, a half dozen eggs for $.50, and a half pound of butter for $2. You use all these ingredients to make three dozen cookies. Your roommate offers you $15 for them, and you happily accept. How much does this process contribute to GDP?

A. $7

B. $15

C. $22

D. $8

31. The goods and services that count toward GDP are:

A. defined in terms of the location of production, not the citizenship of the producer.

B. anything produced within a country's borders, regardless of who owns it.

C. things made in one country, even if the majority of it is owned by someone else.




B. defined in terms of the citizenship of the producer, not the location of production.

C. defined in terms of citizens producing within a country's borders.

D. defined in terms of total production of companies owned by citizens, regardless of the actual location of production.




33. An example of a good or service that would not count in the U.S. GDP would be:

A. a car made by Toyota in Tennessee.

B. a car made by Ford in Michigan.

C. sneakers made by Nike in Indonesia.

D. sneakers made by New Balance in Ohio.


A. a t-shirt made by The Gap in Cambodia.

B. a t-shirt made by Organi-tee in Oregon.

C. a TV made by Toshiba in Georgia.

D. a bottle of water made by Poland Springs in Maine.

35. An example of a good or service that would count in the U.S. GDP would be:

A. a bag of coffee made in Vermont by Green Mountain Coffee Roasters.

B. a bag of coffee made in Colombia by Dunkin' Donuts.

C. a bag of coffee made in Canada by Starbucks.

D. All of these would count in U.S. GDP.




36. An example of a good or service that would count in the U.S. GNP would be:




D. All of these would count in U.S. GNP.

37. An American citizen works for a U.S.-owned architectural firm located in Mexico. This

architect will:

A. contribute toward U.S. GDP since he's a U.S. citizen.

B. contribute toward U.S. GDP since he's working for a U.S. firm.

C. contribute toward Mexico's GDP since he's working in Mexico.

D. contribute toward both Mexico's and U.S. GDP.

38. Suzi is a British citizen who works for Yankee Candles in Massachusetts. Suzi's work

will be included in:

A. U.S. GDP since she's working for a U.S. firm.

B. U.S. GDP since she's working for a firm located in the U.S.

C. England's GDP since she's a British citizen.

D. both the U.S. and England's GDP.




39. Sally is a U.S. citizen who works for an Italian company at the branch office located in Tulsa, Oklahoma. Sally's work will contribute toward:

A. U.S. GDP since Sally's a citizen.

B. U.S. GDP since the location of her office is in the U.S.

C. Italian GDP since she's working for an Italian firm.

D. both the U.S. and Italy's GDP.

40. Clarence is a Japanese citizen working for Toyota at the manufacturing plant located

in Tennessee. Clarence's work will contribute toward:

A. U.S. GDP since the location of the plant is in the U.S.

B. Japan's GDP since he's a Japanese citizen.

C. Japan's GDP since it's a Japanese firm.

D. both the U.S. and Japan's GDP.

41. GNP is:

A. the sum of the market values of all final goods and services produced and capital owned by the permanent residents of a country in a given period of time.

B. gross national product.

C. the value of what is produced by all U.S. companies regardless of their location.





42. U.S. Gross National Product includes:

A. goods produced by foreign firms on U.S. soil.

B. goods produced by U.S. firms on foreign soil.

C. goods produced by foreign firms on foreign soil.


43. U.S. Gross Domestic Product includes:





44. John is a U.S. citizen who works for Walmart located in France. John's work

contributes to:

A. U.S. GDP, but not U.S. GNP.

B. U.S. GNP, but not U.S. GDP.

C. both U.S. GDP and U.S. GNP.

D. neither U.S. GDP nor U.S. GNP.




45. Kelly is a U.S. citizen who works for Burton located in Germany. Kelly's work contributes to:



C. Germany's GDP and U.S. GNP.

D. Germany's GNP and U.S. GDP.

46. Tallulah is a German citizen who works for Volkswagen located in Fresno, California.

Tallulah's work contributes to:



C. German GDP, but not U.S. GDP.

D. German GDP and U.S. GNP.

47. GDP could be calculated over:

A. a month.

B. a quarter.

C. a year.

D. any time period.




48. GDP is most often discussed using _______ figures, although it is typically calculated _______.

A. annual; quarterly

B. annual; monthly

C. quarterly; monthly

D. quarterly; annually

49. In order to estimate the current annual GDP, economists:

A. multiply the quarterly estimate by four.

B. adjust quarterly GDP estimates to account for seasonal patterns.

C. take an average of the last four quarters measured.

D. None of these statements is correct.

50. Quarterly GDP:

A. is typically shown as a seasonally adjusted estimate at an annual rate.

B. takes account of predictable seasonal patterns to guess at annual GDP.

C. is adjusted for predictable, seasonal variation to predict what GDP would be if the economy continues at its current pace.





51. In August of this year, Jack can best estimate the current year's GDP by:

A. adjusting the first two quarterly estimates of GDP for seasonal variation.

B. taking an average of the last four quarterly estimates of GDP available.

C. multiplying the most recent quarter's GDP estimate by four.

D. All of these methods would give Jack the same answer.

52. The market value of a good or service is:

A. the price at which it is bought and sold.

B. the government's valuation using the CPI.

C. the price at which producers are willing to sell an output.


53. If we add up all the money people spend buying final goods and services—being

careful to omit spending on intermediate goods so as not to double-count—the sum will be:

A. the market value of all output sold in the economy.

B. gross domestic product.

C. total expenditure.





54. One way to estimate GDP is:

A. measure the total expenditure of an economy.

B. add up all the money people spend buying final goods and services.

C. add together the market value of all final goods and services sold in the economy.

D. All of these are ways to measure GDP.

55. According to the circular flow model, expenditures by one person translate:

A. directly into income for someone else.

B. indirectly into the value of that person's time.

C. directly into his or her income.

D. indirectly into the household's budget.

56. We can measure total production by:

A. adding up what people spend on final goods and services.

B. adding up everyone's asset wealth.

C. comparing cost of inputs to final sale price.





57. The income approach to calculating GDP:

A. is more accurate than using the expenditure approach.

B. is less accurate than using the expenditure approach.

C. will generate the same answer as using the expenditure approach.

D. is simpler to calculate than the expenditure approach.

58. One of the most crucial ideas in macroeconomics is understanding that:

A. zero unemployment is the best way to achieve economic growth.

B. measuring total expenditures or total income both equal total production of an economy.

C. prolonging economic downturns can be prolonged by fiscal policy.

D. GNP is the most commonly used measurement of total production.

59. The circular flow model illustrates the crucially important idea of macroeconomics,

which is that:

A. every expenditure of someone in the economy is exactly equal to the income of another.

B. only two markets exist in every economy—input and output.

C. income is lower when there is more spending on goods and services.

D. the flow of two things in the economy—"stuff" and "money"—travel in the same direction.




60. A closed economy refers to an economy in which:

A. all goods are produced and sold domestically.

B. all goods are consumed domestically.

C. intermediate goods are sold domestically.

D. a country exports, but does not allow imports.

61. Using the expenditure method to estimate GDP, we would include:

A. consumption, investment, government purchases, and net exports.

B. consumption, government revenues, durable goods, and net exports.

C. consumption, investment, government purchases, and exports.

D. consumption, investment, government purchases, and imports.

62. Consumption, as a component of GDP:

A. measures spending on goods and services by private individuals and households.

B. includes nondurable goods only.

C. includes durable goods only.

D. measures spending only on goods, not services, by private individuals and households.




63. A good that would be counted as consumption in GDP would be:

A. the Subway sandwich Tony ate for lunch.

B. the $10 Tony received after winning a bet with his friend.

C. the $50 in wages Tony received that day from working all afternoon.

D. All of these would be counted as consumption in GDP.

64. A consumption good that would be counted in GDP would be:

A. the coffee Cyndi buys on her way to work in the morning.

B. Cyndi's brand new car.

C. the sunglasses Cyndi bought on clearance sale yesterday.

D. All of these will be counted as consumption in GDP.


A. a new bicycle.

B. a bottle of water.

C. a new washing machine.

D. All of these will be counted as GDP.




66. Ted moves into his first apartment. He buys a barely used washer/dryer set from Craigslist and hires a company to pick it up and deliver it to his apartment. What about this transaction will be counted in GDP?

A. The value of the washer/dryer set

B. The value of the delivery service

C. The value of the washer/dryer set and the delivery service

D. Since Craigslist listings are free, nothing about this transaction will count toward GDP.

67. Investment, as a part of GDP, includes:

A. spending on productive inputs such as factories, machines, and inventory.

B. any goods that are bought by people or firms who plan to use those purchases to produce other goods and services in the future, rather than consuming them.

C. capital goods.



A. stocks.

B. bonds.

C. Both of these are included in investment.

D. Neither of these is included in investment.




69. Upon getting a big promotion, Sally decides to buy a house in the neighborhood she grew up in as a child. In fact, the house she buys used to belong to a neighbor of hers, and so she's certain it's in good shape and well worth the $200,000 she pays for it. The only thing Sally needs to do is replace all the gutters for $1,000, which she happily does. How will GDP be affected by Sally's recent purchases?

A. Consumption will increase by $1,000, and investment will increase by $200,000.

B. Consumption will increase by $210,000.

C. Investment will increase by $210,000.


70. Ace has always been a top student, so it was no surprise he won a $1,500 scholarship

from the company where he worked summers to help with college expenses. Ace decides to spend his scholarship money on a new Apple Macbook before heading off to college in the fall. How will GDP be affected by Ace's recent purchases?

A. Consumption will go up by $1,500, because a computer is a durable good.

B. Investment will go up by $1,500, because a computer is a durable good.

C. GDP will not be affected, since Ace acquired the computer with scholarship money.

D. Consumption will go up by $1,500, because a computer is a nondurable good.

71. Jake, Sr. sells the family business, a factory that produces snake oil, to Jake, Jr., for

$100, even though the factory has been assessed at $400,000. How will this transaction affect GDP?

A. Investment will increase by $100.

B. Investment will increase by $400,000.

C. Consumption will increase by $400,000.

D. GDP will not be affected by the transaction.




72. Mikey likes bagels, so he buys an old pizza shop for $150,000 and spends $10,000 installing new equipment which will allow him to make bagels instead of pizza. How will Mikey's recent purchases affect GDP?

A. Investment will increase $160,000.

B. Investment will increase $150,000, and consumption will increase $10,000.

C. Consumption will increase $150,000, and investment will increase $10,000.

D. Investment will increase $10,000.

73. Inventory is:

A. the stock of goods that a company produces now, but keeps to sell at a future time.

B. the stock of goods that a company produced last year, but had to sell for below cost.

C. the total amount of goods that a company produces now, regardless of whether they've sold it or not.

D. the stock of goods that a company produces and sells in a given time period.

74. At the end of the year, Ford realizes it has overproduced Fiestas, because 2,500 of

them are left unsold. How is this accounted for in that year's GDP?

A. The cars are considered inventory and their value will increase investment.

B. The cars are considered durable goods, and their value will increase consumption.

C. The cars are not counted until they are sold in next year's GDP.





75. Apple has been producing the new iPhone throughout 2013, but doesn't plan to sell it until March 2014. How are these iPhones, which are sitting in a warehouse somewhere in the U.S., affecting GDP?

A. They are inventory and will increase investment in 2013.

B. They will increase GDP only in the year they are produced, 2013.

C. They are considered inventory until they sell, so investment will fall each time one is sold in 2014.


76. Government purchases, as a component of GDP:

A. represent goods and services bought by all levels of government.

B. include both consumption- and investment-type goods bought by the government.

C. include services the government pays for.


77. An example of a government purchase that would be included in GDP would be:

A. pencils for the employees of the FBI to use.

B. the salaries of those in the military.

C. replacement calculators for the Congressional Budget Office.

D. All of these are considered part of government purchases in GDP.




78. Which of the following does not appear in GDP as a part of government spending?

A. Clipboards at the Department of Motor Vehicles

B. Maintenance of government buildings

C. Social Security payments

D. City fireworks displays on the Fourth of July

79. Transfer payments are:

A. spending that transfers resources from the government to individuals.

B. payments that individuals make to the government.

C. when individual stockholders transfer stock ownership in lieu of payment with cash or other liquid asset.

D. None of these is correct.

80. An example of a transfer payment is:

A. a federal income tax refund.

B. a social Security payment.

C. the $3 donation to the Wildlife Fund you make on your tax return.

D. All of these are examples of transfer payments.




81. Spending on imports should get _________ GDP, and spending on exports should be __________.

A. subtracted from; included

B. included in; included as well

C. subtracted from; subtracted as well

D. included in; subtracted

82. Net exports is calculated by:

A. adding total exports and total imports together.

B. subtracting total exports from total imports.

C. subtracting total imports from total exports.


83. The value of net exports is:

A. exports minus imports.

B. imports minus exports.

C. exports plus imports.

D. (exports plus imports) minus tariffs.




84. U.S. exports are:

A. U.S. goods sold to foreigners.

B. Foreign goods bought by Americans.

C. U.S. goods sold to Americans.

D. Foreign and U.S. goods sold to foreigners, but consumed in the U.S.

85. U.S. imports are:





86. An example of a U.S. export would be:

A. a French bottle of wine consumed by an American.

B. an Apple computer purchased by a U.S. college student who plans to study abroad in France.

C. a bushel of apples that Canadians pick and enjoy on a lovely fall day in Vermont.

D. None of these would be considered an export.




87. An example of a U.S. import would be:



C. a bushel of apples that Canadians pick and enjoy during a love fall day in Vermont.

D. None of these would be considered an import.

88. Net exports will be negative if:

A. imports exceed exports.

B. exports exceed imports.

C. it is a closed economy.

D. it is an open economy.

89. The four components that make up GDP are:

A. C, I, G, and NX.

B. C, I, G, and EX.

C. K, I, G, and NX.

D. C, Im, G, and EX.




90. The largest component of GDP is:

A. C.

B. I.

C. G.

D. NX.

91. Consumption:

A. is the largest component of GDP.

B. is the value of total goods purchased by consumers.

C. does not include the price of new homes.

D. All of these are true.

92. If total consumption is $5 billion, investments $2 billion, government purchases $1

billion, exports $1 billion, and imports $3 billion, the GDP must equal:

A. $6 billion.

B. $12 billion.

C. $9 billion.

D. $3 billion.




93. If consumption is $8 billion, investments is $4 billion, government purchases are $2 billion, imports are $1 billion, and exports are $2 billion, GDP must equal:

A. $16.

B. $17.

C. $15.

D. $14.

94. If consumption is $6 billion, investment is $3 billion, government purchases are $1

billion, and GDP is $12 billion, then net exports must equal:

A. $22 billion.

B. $10 billion.

C. $2 billion.

D. $12 billion.

95. If imports are $4 billion and net exports are $4 billion, what must be the value of

exports?

A. $0 billion

B. $8 billion

C. $4 billion

D. $2 billion




96. In a simple closed economy, the income approach to calculating GDP is:

A. wages + interest + rental income + profits.

B. wages + interest + government income + profits

C. wages + government - earned interest + rental income + profits


97. The difference between the sale value of the product and the value of the inputs that

went into it is called:

A. the value-added of that stage of production.

B. the value of the final product.

C. the profit margin.


98. The value-added approach of calculating GDP:

A. is an alternative, and equally valid, way of avoiding the problem of double-counting.

B. lets us break down the total value paid and see how much of it was created at each step of the production process.

C. is especially useful when thinking about services involved in the resale of existing goods.

D. All of these are correct.




99. Which approach to calculating GDP would be best to compare consumer activity versus government purchases?

A. The expenditure approach

B. The income approach

C. The value-added approach

D. Any of these measurements will allow that comparison equally well.

100.

Which approach to calculating GDP best highlights the relative importance of different factors of production?




D. Any of these measurements would work equally well for that comparison.

101.

Which approach to calculating GDP is especially useful in clarifying the resale of existing goods?




D. Any of these measurements will allow that kind of clarification equally well.




102.

U.S. GDP increased from $12.5 trillion in 2005 to $14 trillion in 2009. This means that:

A. people in the U.S. produced more goods and services in 2009 than in 2005.

B. the prices of all goods and services were higher in 2009 than in 2005.

C. Either of these could be true.

D. Both of these must be true.

103.

Real GDP:

A. is calculated based on goods and services valued at constant prices.

B. is calculated based on goods and services valued at current prices (current at the time of production).

C. is useful in clearly seeing changes in prices over time using GDP.


104.

Real GDP:


B. is useful in discerning if the changes in GDP are due to increased production.

C. uses a base year's prices for all years' calculation of GDP.





105.

Assume the table has recorded the total output and prices of the only two goods produced in the country of Mondolia. Looking at the changes in real GDP and nominal GDP from 2000 to 2001, we can conclude that:

A. because real and nominal GDP increased at the same rate, there was no change in prices, only output.

B. because nominal GDP rose more than real GDP, both prices and output must have increased.

C. because GDP rose more than nominal GDP, output must have increased more than prices.

D. because and nominal GDP increased at the same rate, there was no change in output, only prices.

106.

Assume the table has recorded the total output and prices of the only two goods produced in the country of Mondolia. Looking at the figures in the table, the GDP deflator in 2003 was:

A. 135.

B. 74.

C. 109.

D. 105.




107.

Assume the table has recorded the total output and prices of the only two goods produced in the country of Mondolia. Looking at the changes in real GDP and nominal GDP from 2001 to 2002, we can conclude:

A. output and prices increased.

B. only output increased.

C. only prices increased.

D. output increased, but prices decreased.

108.

In the base year:

A. nominal and real GDP are equal by definition.

B. nominal GDP is always larger than real GDP because prices are held constant.

C. real GDP is always larger than nominal GDP because prices are held constant.

D. real GDP will only be larger than nominal GDP if prices increased in the base year.

109.

The base year refers to the year whose:

A. prices are used to calculate real GDP for all years.

B. levels of output are used to calculate the real GDP for all years.

C. prices are used to calculate nominal GDP for all years.

D. levels of output are used to calculate the nominal GDP for all years.




110.

If the nominal GDP were to increase, but the real GDP were to increase by less from one year to the next, we could conclude:

A. prices went up, but output stayed the same.

B. prices stayed the same, but output went up.

C. both prices and output went up.

D. both prices and output stayed the same.

111.

If the Real GDP increases from one year to the next, we could conclude the country experienced:

A. inflation and no change in output.

B. an increase in output and no change in prices.

C. a definite increase in output and may have experienced an increase in prices.

D. definite inflation and may have experienced an increase in output.

112.

Is it possible for a country's nominal GDP to increase and real GDP to decrease from one year to the next?

A. Yes, it would indicate a larger rise in prices relative to a decrease in output.

B. No, since prices are held constant and that would be mathematically impossible.

C. Yes, it would indicate a larger rise in output relative to a decrease in prices.

D. No, since output is held constant and that would be mathematically impossible.




113.

The GDP deflator is a measure of:

A. the overall change in prices in an economy, using the ratio between real and nominal GDP.

B. the overall change in output in an economy, based on goods and services valued at constant prices.

C. the overall change in prices in an economy, based on price-changes determined when output is held constant.

D. the overall change in output in an economy, using the ration between real and nominal GDP.

114.

The GDP deflator is:

A. a measure of the overall change in prices in an economy, using the ratio between real and nominal GDP.

B. one way of summarizing how prices have changed across the entire economy.

C. a weighted average of all of the individual price changes in the economy.

D. All of these statements are correct.

115.

A GDP deflator of 112 means:

A. the overall price level is 12 percent higher than in the base year.

B. the overall output increased by 12 percent since the base year.

C. every price in the economy has gone up by 12 percent.

D. the production of each good in the economy has increased by 12 percent.




116.

Is it possible to have a GDP deflator of less than 100?

A. Yes, it would indicate a year when prices were lower than in the base year.

B. Yes, it would indicate a year when output was lower than in the base year.

C. No, that is mathematically impossible.

D. Yes, it would indicate a year when prices were lower than in the previous year.

117.

In official government statistics, the GDP deflator is actually calculated using:

A. a method called a chain-weighted index.

B. the ratio of nominal GDP to real GDP from the year before it.

C. a simpler approach, so the results are easily comparable.


118.

GDP per capita:

A. paints a clearer picture of how thin the output is spread across a population.

B. tells us how much is produced per person in an economy.

C. is calculated by dividing GDP by the population size of the economy.





119.

GDP per capita:

A. is an average income per person in an economy.

B. tells us about how the output is allocated in an economy.

C. tells us about what you can buy with a given amount of money in that country.


120.

If the GDP of Macroland is $250,000,000 and they have a population of 5,000 people, then the GDP per capita is:

A. quite high.

B. $5,000.

C. $1,250,000.

D. $50,000.

121.

If the GDP per capita is $2,000, and the population is 150,000 people, then the GDP must be:

A. $75.

B. $7,500.

C. $300,000,000.





122.

One of the most common uses of GDP is:

A. to track changes in an economy over time.

B. to see which country has the most fair distribution of wealth.

C. to evaluate different standards of living across countries.


123.

The rate of change in GDP over time is called:

A. the price accelerator.

B. the output generator.

C. the Gini coefficient.

D. the economic growth rate.

124.

The GDP growth rate:

A. is a measure to track changes in an economy over time.

B. looks at changes in GDP across different time periods.

C. is measured as the percent change in real GDP from one time period to the next.





125.

If U.S. real GDP grew from $12 trillion one year to $12.7 trillion the next, the annual growth rate would be:

A. 5.8 percent.

B. 94.4 percent.

C. 105.8 percent.

D. 5.5 percent.

126.

If China's real GDP grew from $7 trillion one year to $8 trillion the next, the annual growth rate would be:

A. 14.3 percent.

B. 87.5 percent.

C. 114 percent.

D. 12.5 percent.

127.

If Italy's real GDP fell from $2.2 trillion one year to $1.9 trillion the next, the annual growth rate would be:

A. -13.6 percent.

B. -15.8 percent.

C. 13.6 percent.

D. 15.8 percent.




128.

If a country experiences a negative growth rate in real GDP, it means:

A. people are producing less than they did the year before.

B. the economy is shrinking.

C. there are less goods to allocate in the economy than before.


129.

A period of significant decline in economic activity, marked by falling GDP, rising unemployment, and an increased number of bankruptcies, is called:

A. a severe depression.

B. a recession.

C. an expansion.

D. a boom.

130.

A recession is characterized by:

A. a period of significant decline in economic activity.

B. falling GDP.

C. increasing unemployment.





131.

A depression is:

A. a severe and extended period of recession.

B. a recession that lasts more than four quarters.

C. a recession that lasts more than three quarters.

D. a recession that lasts more than eight quarters.

132.

The government office that declares official periods of recession and depression is the:

A. National Bureau of Economic Research.

B. Bureau of Labor Statistics.

C. Congressional Budget Office.

D. Federal Reserve Board.

133.

Of the world's countries, which of the following can be said of their real GDP growth rates in recent years?

A. Countries like China and the Middle East have experienced higher rates of growth than the U.S.

B. The U.S. has consistently had the highest growth rate in the world for many years.

C. Neither of these statements is true.

D. Both of these statements are true, since the U.S. was highest until 2010, when China surpassed it.




134.

A major category of economic activity that is not counted as part of GDP is:

A. home production.

B. the underground economy.

C. nonmarket externalities such as environmental degradation.

D. All of these are not included in GDP.

135.

An activity that would not be included in GDP would be:

A. a sweater you knit for your roommate for her birthday.

B. getting tomatoes from your garden and making salsa with them.

C. cleaning your house.

D. None of these would be included in GDP.

136.

Which of the following activities would be included in GDP?

A. You hire a cleaning service at $40 to clean your house.

B. Your roommate pays you $40 to clean the house.

C. Your parents send you $40 to hire a house cleaner, and you clean the house and keep the $40 yourself.

D. All of these would be included in GDP, since there was a monetary exchange.




137.

Which of the following activities would be included in GDP?

A. You buy a cake from a local bakery for $30.

B. You pay a friend $30 to bake a cake.

C. You bake a cake for yourself.

D. All of these would be included in GDP.

138.

An example of something that might be sold in the underground economy is:

A. lawn-mowing services.

B. endangered animals.

C. baby-sitting services.

D. All of these are exchanged in the underground economy.

139.

The many goods and services that are sold below the radar, outside of official records take place in the:

A. underground economy.

B. soft market.

C. illegal economy.





140.

The difference between black market and gray market activities is:

A. while neither are included in GDP, black market items are illegal and gray market items are not.

B. while neither are include in GDP, gray market items are illegal and black market items are not.

C. black market items are very rare and difficult to find, and gray market items are more commonplace, like babysitting.

D. black market items are typically expensive items, and gray market items are not.

141.

On average across the world, the underground economy is worth about

A. one-third of GDP.

B. one-tenth of GDP.

C. one-quarter of GDP.

D. one-half of GDP.

142.

In the United States the underground economy has been valued at around:

A. 7 percent or 8 percent of GDP.

B. 2 percent or 3 percent of GDP.

C. 5 percent to 6 percent of GDP.

D. 9 percent to 10 percent of GDP.




143.

The size of the underground economy is larger when:

A. the cost of doing business legally is high.

B. bribes are often necessary to cut through bureaucratic red tape.

C. taxes are extremely high.


144.

Negative externalities:

A. can be thought of as "negative output."

B. are final "goods" that do harm to people.

C. are not included in GDP.


145.

An example of a negative externality is:

A. pollution.

B. toxic waste disposal.

C. a nuclear power plant.

D. All of these are examples of negative externalities.




146.

The Green GDP:

A. tries to capture the environmental effects regular GDP doesn't.

B. subtracts the environmental costs of production from the positive outputs normally counted in GDP.

C. values negative externalities.


147.

Which of the following measures can give some indication of the quality of life in an economy?

A. Child mortality

B. Literacy rates

C. Life expectancy

D. All of these are measures used to assess quality of life.

148.

GDP per capita:

A. is highly correlated with quality of life.

B. is perfectly correlated with quality of life.

C. is loosely correlated with quality of life.

D. is negatively correlated with quality of life.




149.

When maximizing economic growth is a country's goal:

A. it may work in opposition to the country's happiness in terms of satisfaction gained from leisure.

B. it increases the correlation to the country's happiness, because more money makes people happier.

C. it creates a perfect correlation to happiness, if the money is allocated fairly.





Chapter 24 Measuring the Wealth of Nations Answer Key

Multiple Choice Questions

1. One of the economic changes that has most dramatically reshaped the world is:

A. the rapid growth of China's economy.

B. the rapid decline of Haiti's economy.

C. the unemployment rate declining in the U.S. by 40 percent.

D. the rapid growth of Italy's economy.

AACSB: Reflective Thinking

Blooms: UnderstandLearning Objective: 24-01 Justify the importance of using the market value of final goods and services to

calculate GDP; and explain why each component of GDP is important.Topic: Valuing an Economy

2. In 1978, China was the world's 15th-largest economy. By 2011, China:

A. had the second-largest economy in the world.

B. had a larger economy than Japan.

C. had an economy worth about $6 trillion.








3. The two largest economies in the world in 2012 were:

A. the U.S. and China.

B. Japan and the U.S.

C. England and the U.S.

D. the U.S. and Germany.




4. Economic growth can:

A. create jobs.

B. reduce poverty.

C. improve standards of living.








5. In China, the fraction of the population living below the international poverty line ($1.25 per person per day) fell from over 80 percent in 1978 to:

A. under 20 percent as of 2011.

B. under 50 percent as of 2011.

C. under 40 percent as of 2011.

D. under 30 percent as of 2011.




6. Calculating the value of an economy is harder than just adding up the value of every single thing that is produced because:

A. that would lead to overcounting, as the value of intermediate products would be counted twice.

B. that would lead to overcounting, as there is a mark-up in everything that is sold.

C. that would lead to undercounting, as most goods are not sold in retail markets.

D. that would lead to undercounting, as only observable markets can be recorded.







7. The system we use to measure the value of an economy is called:

A. national income accounting.

B. national economic valuation.

C. macroeconomic summation.

D. national expenditure accounting.




8. Macroeconomics works to explain things like:

A. economic growth.

B. unemployment rates.






9. Measuring the national income accounts can be helpful in explaining things like:

A. unemployment rates.

B. economic booms.









10. The field of macroeconomics studies ______ and microeconomics studies ______.

A. economic aggregates; individual markets

B. individual markets; economic aggregates

C. international variables; variables within a single economy

D. variables within a single economy; international variables




11. In macroeconomics, which of the following topic would likely be studied?

A. Bob's budget

B. Nike's costs of production

C. The growth rate of the oil industry

D. All of these are microeconomic topics.







12. In macroeconomics, we talk about:

A. consumption at a national level.

B. production of all goods in the economy.

C. prices in the aggregate.

D. All of these are things macroeconomists talk about.




13. Everyone in an economy tends to do better when we experience:

A. high economic growth, low unemployment, and high inflation.

B. steady economic growth, low unemployment, and stable prices.

C. steady economic growth, high unemployment, and stable prices.

D. high economic growth, high unemployment, and low inflation.







14. The most commonly used metric for measuring the value of a national economy is:

A. gross domestic product, or GDP.

B. gross national product, or GNP.

C. gross national income, or GNI.

D. gross domestic income, or GDI.




15. GDP:

A. gives us a sense of the well-being of the average person in a country.

B. allows us to gauge the direction an economy is headed when we examine changes in GDP over time.

C. measures the value of a national economy.








16. We can measure the status of a national economy by looking at:

A. its total expenditures.

B. its total income.

C. We can look at either of these things to get the same measure.

D. Neither of these is used to measure a nation's economic status.




17. Gross domestic product is:

A. the sum of the market values of all final goods and services produced within a country in a given period of time.

B. the sum of the market values of all intermediate goods and services produced within a country in a given period of time.

C. the sum of all final goods and services produced by a country's citizens in a given period of time.

D. the sum of the market values of all final goods and services produced by a country's citizens in a given period of time.



calculate GDP; and explain why each component of GDP is important.Topic: GDP

18. GDP uses the market value of goods and services because:

A. it provides a common valuation that allows us to compare one economy to another.

B. it provides the opportunity to compare lists of outputs to see who produced more.

C. it is the only data that can be gathered about goods and services.








19. GDP counts:

A. only final goods and services, because otherwise certain things would be double-counted and the GDP would be overestimated.

B. only intermediate goods and services, because those are easier to track.

C. both intermediate and final goods and services because it is important to capture all values, regardless of which market they take place in.

D. those values that are reported to the government.




20. Intermediate goods and services are:

A. used only as inputs to produce something else and are not counted in GDP.

B. goods that consumers buy in parts—like a new tire for their car—and are included in GDP.

C. used only as inputs to produce something else and are counted in GDP.

D. goods that consumers buy in parts—like a new tire for their car—and are not included in GDP.







21. An example of an intermediate good would be:

A. the rice used to make Chex cereal.

B. a bag of Uncle Ben's rice sold to consumers.

C. a bag of Quaker's rice cakes sold to consumers.





22. Which of the following is an intermediate good?

A. Tomatoes grown in your garden that you use to make salsa

B. Tomatoes you buy at a local farmer's stand that you use to make salsa

C. Tomatoes sold in the grocery store that you use to make salsa

D. None of these is an intermediate good.




23. Which of the following is not an intermediate good?

A. Tires purchased by Ford to put on their new Explorers

B. Tires sold by Goodyear to put on your Explorer

C. Tomatoes used by Ortega to make their salsa








24. An example of a final good is:

A. chocolate chips purchased by Nabisco to make Keebler chocolate chip cookies.

B. chocolate chips purchased by you to make chocolate chip cookies.

C. chocolate chips purchased by a restaurant to make a chocolate chip cookie pie to sell.

D. All of these are final goods.




25. An example of a final good or service is:

A. a tire to replace your flat.

B. a new car.

C. getting the oil changed in your car.









A. A gallon of milk for your breakfast cereal

B. A notebook for your college courses

C. The cheese on the pizza you bought from Domino's






A. Coffee grounds you use to make your coffee every morning

B. Coffee grounds used by a coffee shop to make your coffee every morning

C. Coffee grounds used by Edy's to make coffee ice cream

D. None of these is a final good or service.




28. Intermediate goods are not included in GDP because:

A. certain goods that are used in the production of a final good would be counted twice.

B. the value of goods bought by producers to make something else would be counted twice.

C. the value of goods used by firms to make the goods they sell is included in the firm's product; accounting for the value twice would overestimate GDP.








29. A Chinese restaurant buys 10 cups rice for $1; soy, fish and oyster sauces for $1 each; and assorted vegetables for $20. They create 10 meals with these ingredients and sell each one for $5. How much does this process contribute to GDP?

A. $23

B. $50

C. $73

D. $27




30. You purchase a bag of chocolate chips for $3, a bag of flour for $1, a bag of sugar for $.50, a half dozen eggs for $.50, and a half pound of butter for $2. You use all these ingredients to make three dozen cookies. Your roommate offers you $15 for them, and you happily accept. How much does this process contribute to GDP?

A. $7

B. $15

C. $22

D. $8









B. anything produced within a country's borders, regardless of who owns it.

C. things made in one country, even if the majority of it is owned by someone else.







B. defined in terms of the citizenship of the producer, not the location of production.

C. defined in terms of citizens producing within a country's borders.

D. defined in terms of total production of companies owned by citizens, regardless of the actual location of production.





A. a car made by Toyota in Tennessee.

B. a car made by Ford in Michigan.

C. sneakers made by Nike in Indonesia.

D. sneakers made by New Balance in Ohio.








A. a t-shirt made by The Gap in Cambodia.

B. a t-shirt made by Organi-tee in Oregon.

C. a TV made by Toshiba in Georgia.

D. a bottle of water made by Poland Springs in Maine.




35. An example of a good or service that would count in the U.S. GDP would be:




D. All of these would count in U.S. GDP.







36. An example of a good or service that would count in the U.S. GNP would be:




D. All of these would count in U.S. GNP.




37. An American citizen works for a U.S.-owned architectural firm located in Mexico. This architect will:

A. contribute toward U.S. GDP since he's a U.S. citizen.

B. contribute toward U.S. GDP since he's working for a U.S. firm.

C. contribute toward Mexico's GDP since he's working in Mexico.

D. contribute toward both Mexico's and U.S. GDP.







38. Suzi is a British citizen who works for Yankee Candles in Massachusetts. Suzi's work will be included in:

A. U.S. GDP since she's working for a U.S. firm.

B. U.S. GDP since she's working for a firm located in the U.S.

C. England's GDP since she's a British citizen.

D. both the U.S. and England's GDP.




39. Sally is a U.S. citizen who works for an Italian company at the branch office located in Tulsa, Oklahoma. Sally's work will contribute toward:

A. U.S. GDP since Sally's a citizen.

B. U.S. GDP since the location of her office is in the U.S.

C. Italian GDP since she's working for an Italian firm.

D. both the U.S. and Italy's GDP.







40. Clarence is a Japanese citizen working for Toyota at the manufacturing plant located in Tennessee. Clarence's work will contribute toward:

A. U.S. GDP since the location of the plant is in the U.S.

B. Japan's GDP since he's a Japanese citizen.

C. Japan's GDP since it's a Japanese firm.

D. both the U.S. and Japan's GDP.




41. GNP is:

A. the sum of the market values of all final goods and services produced and capital owned by the permanent residents of a country in a given period of time.

B. gross national product.

C. the value of what is produced by all U.S. companies regardless of their location.




calculate GDP; and explain why each component of GDP is important.Topic: GDP vs. GNP




42. U.S. Gross National Product includes:








43. U.S. Gross Domestic Product includes:











44. John is a U.S. citizen who works for Walmart located in France. John's work contributes to:



C. both U.S. GDP and U.S. GNP.

D. neither U.S. GDP nor U.S. GNP.




45. Kelly is a U.S. citizen who works for Burton located in Germany. Kelly's work contributes to:



C. Germany's GDP and U.S. GNP.

D. Germany's GNP and U.S. GDP.







46. Tallulah is a German citizen who works for Volkswagen located in Fresno, California. Tallulah's work contributes to:



C. German GDP, but not U.S. GDP.

D. German GDP and U.S. GNP.




47. GDP could be calculated over:

A. a month.

B. a quarter.

C. a year.

D. any time period.







48. GDP is most often discussed using _______ figures, although it is typically calculated _______.

A. annual; quarterly

B. annual; monthly

C. quarterly; monthly

D. quarterly; annually




49. In order to estimate the current annual GDP, economists:

A. multiply the quarterly estimate by four.

B. adjust quarterly GDP estimates to account for seasonal patterns.

C. take an average of the last four quarters measured.








50. Quarterly GDP:

A. is typically shown as a seasonally adjusted estimate at an annual rate.

B. takes account of predictable seasonal patterns to guess at annual GDP.

C. is adjusted for predictable, seasonal variation to predict what GDP would be if the economy continues at its current pace.





51. In August of this year, Jack can best estimate the current year's GDP by:

A. adjusting the first two quarterly estimates of GDP for seasonal variation.

B. taking an average of the last four quarterly estimates of GDP available.

C. multiplying the most recent quarter's GDP estimate by four.

D. All of these methods would give Jack the same answer.




52. The market value of a good or service is:

A. the price at which it is bought and sold.

B. the government's valuation using the CPI.

C. the price at which producers are willing to sell an output.






Blooms: UnderstandLearning Objective: 24-02 Explain the equivalence of the expenditure and income approaches to valuing an

economy.Topic: Income vs. Expenditure Approach

53. If we add up all the money people spend buying final goods and services—being careful to omit spending on intermediate goods so as not to double-count—the sum will be:

A. the market value of all output sold in the economy.

B. gross domestic product.

C. total expenditure.





54. One way to estimate GDP is:

A. measure the total expenditure of an economy.

B. add up all the money people spend buying final goods and services.

C. add together the market value of all final goods and services sold in the economy.

D. All of these are ways to measure GDP.







55. According to the circular flow model, expenditures by one person translate:

A. directly into income for someone else.

B. indirectly into the value of that person's time.

C. directly into his or her income.

D. indirectly into the household's budget.




56. We can measure total production by:

A. adding up what people spend on final goods and services.

B. adding up everyone's asset wealth.

C. comparing cost of inputs to final sale price.





57. The income approach to calculating GDP:

A. is more accurate than using the expenditure approach.

B. is less accurate than using the expenditure approach.

C. will generate the same answer as using the expenditure approach.

D. is simpler to calculate than the expenditure approach.







58. One of the most crucial ideas in macroeconomics is understanding that:

A. zero unemployment is the best way to achieve economic growth.

B. measuring total expenditures or total income both equal total production of an economy.

C. prolonging economic downturns can be prolonged by fiscal policy.

D. GNP is the most commonly used measurement of total production.




59. The circular flow model illustrates the crucially important idea of macroeconomics, which is that:

A. every expenditure of someone in the economy is exactly equal to the income of another.

B. only two markets exist in every economy—input and output.

C. income is lower when there is more spending on goods and services.

D. the flow of two things in the economy—"stuff" and "money"—travel in the same direction.







60. A closed economy refers to an economy in which:

A. all goods are produced and sold domestically.

B. all goods are consumed domestically.

C. intermediate goods are sold domestically.

D. a country exports, but does not allow imports.




61. Using the expenditure method to estimate GDP, we would include:

A. consumption, investment, government purchases, and net exports.

B. consumption, government revenues, durable goods, and net exports.

C. consumption, investment, government purchases, and exports.

D. consumption, investment, government purchases, and imports.




62. Consumption, as a component of GDP:

A. measures spending on goods and services by private individuals and households.

B. includes nondurable goods only.

C. includes durable goods only.

D. measures spending only on goods, not services, by private individuals and households.





Blooms: UnderstandLearning Objective: 24-03 Explain the three approaches that are used to calculate GDP; and list the categories

of spending that are included in the expenditure approach.Topic: Components of GDP

63. A good that would be counted as consumption in GDP would be:

A. the Subway sandwich Tony ate for lunch.

B. the $10 Tony received after winning a bet with his friend.

C. the $50 in wages Tony received that day from working all afternoon.

D. All of these would be counted as consumption in GDP.





A. the coffee Cyndi buys on her way to work in the morning.

B. Cyndi's brand new car.

C. the sunglasses Cyndi bought on clearance sale yesterday.

D. All of these will be counted as consumption in GDP.








A. a new bicycle.

B. a bottle of water.

C. a new washing machine.

D. All of these will be counted as GDP.




66. Ted moves into his first apartment. He buys a barely used washer/dryer set from Craigslist and hires a company to pick it up and deliver it to his apartment. What about this transaction will be counted in GDP?

A. The value of the washer/dryer set

B. The value of the delivery service

C. The value of the washer/dryer set and the delivery service

D. Since Craigslist listings are free, nothing about this transaction will count toward GDP.








A. spending on productive inputs such as factories, machines, and inventory.

B. any goods that are bought by people or firms who plan to use those purchases to produce other goods and services in the future, rather than consuming them.

C. capital goods.






A. stocks.

B. bonds.

C. Both of these are included in investment.

D. Neither of these is included in investment.







69. Upon getting a big promotion, Sally decides to buy a house in the neighborhood she grew up in as a child. In fact, the house she buys used to belong to a neighbor of hers, and so she's certain it's in good shape and well worth the $200,000 she pays for it. The only thing Sally needs to do is replace all the gutters for $1,000, which she happily does. How will GDP be affected by Sally's recent purchases?

A. Consumption will increase by $1,000, and investment will increase by $200,000.

B. Consumption will increase by $210,000.

C. Investment will increase by $210,000.





70. Ace has always been a top student, so it was no surprise he won a $1,500 scholarship from the company where he worked summers to help with college expenses. Ace decides to spend his scholarship money on a new Apple Macbook before heading off to college in the fall. How will GDP be affected by Ace's recent purchases?

A. Consumption will go up by $1,500, because a computer is a durable good.

B. Investment will go up by $1,500, because a computer is a durable good.

C. GDP will not be affected, since Ace acquired the computer with scholarship money.

D. Consumption will go up by $1,500, because a computer is a nondurable good.







71. Jake, Sr. sells the family business, a factory that produces snake oil, to Jake, Jr., for $100, even though the factory has been assessed at $400,000. How will this transaction affect GDP?

A. Investment will increase by $100.

B. Investment will increase by $400,000.

C. Consumption will increase by $400,000.

D. GDP will not be affected by the transaction.




72. Mikey likes bagels, so he buys an old pizza shop for $150,000 and spends $10,000 installing new equipment which will allow him to make bagels instead of pizza. How will Mikey's recent purchases affect GDP?

A. Investment will increase $160,000.

B. Investment will increase $150,000, and consumption will increase $10,000.

C. Consumption will increase $150,000, and investment will increase $10,000.

D. Investment will increase $10,000.







73. Inventory is:

A. the stock of goods that a company produces now, but keeps to sell at a future time.

B. the stock of goods that a company produced last year, but had to sell for below cost.

C. the total amount of goods that a company produces now, regardless of whether they've sold it or not.

D. the stock of goods that a company produces and sells in a given time period.




74. At the end of the year, Ford realizes it has overproduced Fiestas, because 2,500 of them are left unsold. How is this accounted for in that year's GDP?

A. The cars are considered inventory and their value will increase investment.

B. The cars are considered durable goods, and their value will increase consumption.

C. The cars are not counted until they are sold in next year's GDP.








75. Apple has been producing the new iPhone throughout 2013, but doesn't plan to sell it until March 2014. How are these iPhones, which are sitting in a warehouse somewhere in the U.S., affecting GDP?

A. They are inventory and will increase investment in 2013.

B. They will increase GDP only in the year they are produced, 2013.

C. They are considered inventory until they sell, so investment will fall each time one is sold in 2014.





76. Government purchases, as a component of GDP:

A. represent goods and services bought by all levels of government.

B. include both consumption- and investment-type goods bought by the government.

C. include services the government pays for.








77. An example of a government purchase that would be included in GDP would be:

A. pencils for the employees of the FBI to use.

B. the salaries of those in the military.

C. replacement calculators for the Congressional Budget Office.

D. All of these are considered part of government purchases in GDP.




78. Which of the following does not appear in GDP as a part of government spending?

A. Clipboards at the Department of Motor Vehicles

B. Maintenance of government buildings

C. Social Security payments

D. City fireworks displays on the Fourth of July




79. Transfer payments are:

A. spending that transfers resources from the government to individuals.

B. payments that individuals make to the government.

C. when individual stockholders transfer stock ownership in lieu of payment with cash or other liquid asset.








80. An example of a transfer payment is:

A. a federal income tax refund.

B. a social Security payment.

C. the $3 donation to the Wildlife Fund you make on your tax return.

D. All of these are examples of transfer payments.




81. Spending on imports should get _________ GDP, and spending on exports should be __________.

A. subtracted from; included

B. included in; included as well

C. subtracted from; subtracted as well

D. included in; subtracted







82. Net exports is calculated by:

A. adding total exports and total imports together.

B. subtracting total exports from total imports.

C. subtracting total imports from total exports.





83. The value of net exports is:

A. exports minus imports.

B. imports minus exports.

C. exports plus imports.

D. (exports plus imports) minus tariffs.




84. U.S. exports are:











85. U.S. imports are:








86. An example of a U.S. export would be:



C. a bushel of apples that Canadians pick and enjoy on a lovely fall day in Vermont.

D. None of these would be considered an export.







87. An example of a U.S. import would be:



C. a bushel of apples that Canadians pick and enjoy during a love fall day in Vermont.

D. None of these would be considered an import.




88. Net exports will be negative if:

A. imports exceed exports.

B. exports exceed imports.

C. it is a closed economy.

D. it is an open economy.




89. The four components that make up GDP are:

A. C, I, G, and NX.

B. C, I, G, and EX.

C. K, I, G, and NX.

D. C, Im, G, and EX.







90. The largest component of GDP is:

A. C.

B. I.

C. G.

D. NX.




91. Consumption:

A. is the largest component of GDP.

B. is the value of total goods purchased by consumers.

C. does not include the price of new homes.

D. All of these are true.







92. If total consumption is $5 billion, investments $2 billion, government purchases $1 billion, exports $1 billion, and imports $3 billion, the GDP must equal:

A. $6 billion.

B. $12 billion.

C. $9 billion.

D. $3 billion.




93. If consumption is $8 billion, investments is $4 billion, government purchases are $2 billion, imports are $1 billion, and exports are $2 billion, GDP must equal:

A. $16.

B. $17.

C. $15.

D. $14.







94. If consumption is $6 billion, investment is $3 billion, government purchases are $1 billion, and GDP is $12 billion, then net exports must equal:

A. $22 billion.

B. $10 billion.

C. $2 billion.

D. $12 billion.




95. If imports are $4 billion and net exports are $4 billion, what must be the value of exports?

A. $0 billion

B. $8 billion

C. $4 billion

D. $2 billion







96. In a simple closed economy, the income approach to calculating GDP is:

A. wages + interest + rental income + profits.

B. wages + interest + government income + profits

C. wages + government - earned interest + rental income + profits





97. The difference between the sale value of the product and the value of the inputs that went into it is called:

A. the value-added of that stage of production.

B. the value of the final product.

C. the profit margin.








98. The value-added approach of calculating GDP:

A. is an alternative, and equally valid, way of avoiding the problem of double-counting.

B. lets us break down the total value paid and see how much of it was created at each step of the production process.

C. is especially useful when thinking about services involved in the resale of existing goods.

D. All of these are correct.




99. Which approach to calculating GDP would be best to compare consumer activity versus government purchases?




D. Any of these measurements will allow that comparison equally well.







100. Which approach to calculating GDP best highlights the relative importance of different factors of production?




D. Any of these measurements would work equally well for that comparison.




101. Which approach to calculating GDP is especially useful in clarifying the resale of existing goods?




D. Any of these measurements will allow that kind of clarification equally well.







102. U.S. GDP increased from $12.5 trillion in 2005 to $14 trillion in 2009. This means that:

A. people in the U.S. produced more goods and services in 2009 than in 2005.

B. the prices of all goods and services were higher in 2009 than in 2005.

C. Either of these could be true.

D. Both of these must be true.


Blooms: UnderstandLearning Objective: 24-04 Explain the difference between real and nominal GDP; and calculate the GDP

deflator.Topic: Real vs. Nominal GDP

103. Real GDP:


B. is calculated based on goods and services valued at current prices (current at the time of production).

C. is useful in clearly seeing changes in prices over time using GDP.








104. Real GDP:


B. is useful in discerning if the changes in GDP are due to increased production.

C. uses a base year's prices for all years' calculation of GDP.





105.

Assume the table has recorded the total output and prices of the only two goods produced in the country of Mondolia. Looking at the changes in real GDP and nominal GDP from 2000 to 2001, we can conclude that:

A. because real and nominal GDP increased at the same rate, there was no change in prices, only output.

B. because nominal GDP rose more than real GDP, both prices and output must have increased.

C. because GDP rose more than nominal GDP, output must have increased more than prices.

D. because and nominal GDP increased at the same rate, there was no change in output, only prices.







106.

Assume the table has recorded the total output and prices of the only two goods produced in the country of Mondolia. Looking at the figures in the table, the GDP deflator in 2003 was:

A. 135.

B. 74.

C. 109.

D. 105.




107.

Assume the table has recorded the total output and prices of the only two goods produced in the country of Mondolia. Looking at the changes in real GDP and nominal GDP from 2001 to 2002, we can conclude:

A. output and prices increased.

B. only output increased.

C. only prices increased.

D. output increased, but prices decreased.


Blooms: Understand




Learning Objective: 24-04 Explain the difference between real and nominal GDP; and calculate the GDP deflator.

Topic: Real vs. Nominal GDP

108. In the base year:

A. nominal and real GDP are equal by definition.

B. nominal GDP is always larger than real GDP because prices are held constant.

C. real GDP is always larger than nominal GDP because prices are held constant.

D. real GDP will only be larger than nominal GDP if prices increased in the base year.




109. The base year refers to the year whose:

A. prices are used to calculate real GDP for all years.

B. levels of output are used to calculate the real GDP for all years.

C. prices are used to calculate nominal GDP for all years.

D. levels of output are used to calculate the nominal GDP for all years.







110. If the nominal GDP were to increase, but the real GDP were to increase by less from one year to the next, we could conclude:

A. prices went up, but output stayed the same.

B. prices stayed the same, but output went up.

C. both prices and output went up.

D. both prices and output stayed the same.




111. If the Real GDP increases from one year to the next, we could conclude the country experienced:

A. inflation and no change in output.

B. an increase in output and no change in prices.

C. a definite increase in output and may have experienced an increase in prices.

D. definite inflation and may have experienced an increase in output.







112. Is it possible for a country's nominal GDP to increase and real GDP to decrease from one year to the next?

A. Yes, it would indicate a larger rise in prices relative to a decrease in output.

B. No, since prices are held constant and that would be mathematically impossible.

C. Yes, it would indicate a larger rise in output relative to a decrease in prices.

D. No, since output is held constant and that would be mathematically impossible.




113. The GDP deflator is a measure of:

A. the overall change in prices in an economy, using the ratio between real and nominal GDP.

B. the overall change in output in an economy, based on goods and services valued at constant prices.

C. the overall change in prices in an economy, based on price-changes determined when output is held constant.

D. the overall change in output in an economy, using the ration between real and nominal GDP.



deflator.Topic: GDP Deflator




114. The GDP deflator is:

A. a measure of the overall change in prices in an economy, using the ratio between real and nominal GDP.

B. one way of summarizing how prices have changed across the entire economy.

C. a weighted average of all of the individual price changes in the economy.

D. All of these statements are correct.




115. A GDP deflator of 112 means:

A. the overall price level is 12 percent higher than in the base year.

B. the overall output increased by 12 percent since the base year.

C. every price in the economy has gone up by 12 percent.

D. the production of each good in the economy has increased by 12 percent.




116. Is it possible to have a GDP deflator of less than 100?

A. Yes, it would indicate a year when prices were lower than in the base year.

B. Yes, it would indicate a year when output was lower than in the base year.

C. No, that is mathematically impossible.

D. Yes, it would indicate a year when prices were lower than in the previous year.







117. In official government statistics, the GDP deflator is actually calculated using:

A. a method called a chain-weighted index.

B. the ratio of nominal GDP to real GDP from the year before it.

C. a simpler approach, so the results are easily comparable.





118. GDP per capita:

A. paints a clearer picture of how thin the output is spread across a population.

B. tells us how much is produced per person in an economy.

C. is calculated by dividing GDP by the population size of the economy.


AACSB: Analytic

Blooms: ApplyLearning Objective: 24-05 Calculate and explain the meanings of GDP per capita and the real GDP annual

growth rate.Topic: GDP vs. GDP per Capita





A. is an average income per person in an economy.

B. tells us about how the output is allocated in an economy.

C. tells us about what you can buy with a given amount of money in that country.


AACSB: Analytic



120. If the GDP of Macroland is $250,000,000 and they have a population of 5,000 people, then the GDP per capita is:

A. quite high.

B. $5,000.

C. $1,250,000.

D. $50,000.

AACSB: Analytic






121. If the GDP per capita is $2,000, and the population is 150,000 people, then the GDP must be:

A. $75.

B. $7,500.

C. $300,000,000.


AACSB: Analytic



122. One of the most common uses of GDP is:

A. to track changes in an economy over time.

B. to see which country has the most fair distribution of wealth.

C. to evaluate different standards of living across countries.


AACSB: Analytic


growth rate.Topic: GDP Growth Rate




123. The rate of change in GDP over time is called:

A. the price accelerator.

B. the output generator.

C. the Gini coefficient.

D. the economic growth rate.

AACSB: Analytic



124. The GDP growth rate:

A. is a measure to track changes in an economy over time.

B. looks at changes in GDP across different time periods.

C. is measured as the percent change in real GDP from one time period to the next.


AACSB: Analytic






125. If U.S. real GDP grew from $12 trillion one year to $12.7 trillion the next, the annual growth rate would be:

A. 5.8 percent.

B. 94.4 percent.

C. 105.8 percent.

D. 5.5 percent.

AACSB: Analytic



126. If China's real GDP grew from $7 trillion one year to $8 trillion the next, the annual growth rate would be:

A. 14.3 percent.

B. 87.5 percent.

C. 114 percent.

D. 12.5 percent.

AACSB: Analytic






127. If Italy's real GDP fell from $2.2 trillion one year to $1.9 trillion the next, the annual growth rate would be:

A. -13.6 percent.

B. -15.8 percent.

C. 13.6 percent.

D. 15.8 percent.

AACSB: Analytic



128. If a country experiences a negative growth rate in real GDP, it means:

A. people are producing less than they did the year before.

B. the economy is shrinking.

C. there are less goods to allocate in the economy than before.


AACSB: Analytic






129. A period of significant decline in economic activity, marked by falling GDP, rising unemployment, and an increased number of bankruptcies, is called:

A. a severe depression.

B. a recession.

C. an expansion.

D. a boom.

AACSB: Analytic



130. A recession is characterized by:

A. a period of significant decline in economic activity.

B. falling GDP.

C. increasing unemployment.


AACSB: Analytic






131. A depression is:

A. a severe and extended period of recession.

B. a recession that lasts more than four quarters.

C. a recession that lasts more than three quarters.

D. a recession that lasts more than eight quarters.

AACSB: Analytic



132. The government office that declares official periods of recession and depression is the:

A. National Bureau of Economic Research.

B. Bureau of Labor Statistics.

C. Congressional Budget Office.

D. Federal Reserve Board.

AACSB: Analytic






133. Of the world's countries, which of the following can be said of their real GDP growth rates in recent years?

A. Countries like China and the Middle East have experienced higher rates of growth than the U.S.

B. The U.S. has consistently had the highest growth rate in the world for many years.

C. Neither of these statements is true.

D. Both of these statements are true, since the U.S. was highest until 2010, when China surpassed it.

AACSB: Analytic



134. A major category of economic activity that is not counted as part of GDP is:

A. home production.

B. the underground economy.

C. nonmarket externalities such as environmental degradation.

D. All of these are not included in GDP.


Blooms: UnderstandLearning Objective: 24-06 Discuss some limitations to GDP; including its measurement of home production; the

underground economy; environmental degradation; and well-being.Topic: Limitations of GDP




135. An activity that would not be included in GDP would be:

A. a sweater you knit for your roommate for her birthday.

B. getting tomatoes from your garden and making salsa with them.

C. cleaning your house.

D. None of these would be included in GDP.




136. Which of the following activities would be included in GDP?

A. You hire a cleaning service at $40 to clean your house.

B. Your roommate pays you $40 to clean the house.

C. Your parents send you $40 to hire a house cleaner, and you clean the house and keep the $40 yourself.

D. All of these would be included in GDP, since there was a monetary exchange.




137. Which of the following activities would be included in GDP?

A. You buy a cake from a local bakery for $30.

B. You pay a friend $30 to bake a cake.

C. You bake a cake for yourself.

D. All of these would be included in GDP.







138. An example of something that might be sold in the underground economy is:

A. lawn-mowing services.

B. endangered animals.

C. baby-sitting services.

D. All of these are exchanged in the underground economy.




139. The many goods and services that are sold below the radar, outside of official records take place in the:

A. underground economy.

B. soft market.

C. illegal economy.








140. The difference between black market and gray market activities is:

A. while neither are included in GDP, black market items are illegal and gray market items are not.

B. while neither are include in GDP, gray market items are illegal and black market items are not.

C. black market items are very rare and difficult to find, and gray market items are more commonplace, like babysitting.

D. black market items are typically expensive items, and gray market items are not.




141. On average across the world, the underground economy is worth about

A. one-third of GDP.

B. one-tenth of GDP.

C. one-quarter of GDP.

D. one-half of GDP.




142. In the United States the underground economy has been valued at around:

A. 7 percent or 8 percent of GDP.

B. 2 percent or 3 percent of GDP.

C. 5 percent to 6 percent of GDP.

D. 9 percent to 10 percent of GDP.







143. The size of the underground economy is larger when:

A. the cost of doing business legally is high.

B. bribes are often necessary to cut through bureaucratic red tape.

C. taxes are extremely high.





144. Negative externalities:

A. can be thought of as "negative output."

B. are final "goods" that do harm to people.

C. are not included in GDP.








145. An example of a negative externality is:

A. pollution.

B. toxic waste disposal.

C. a nuclear power plant.

D. All of these are examples of negative externalities.




146. The Green GDP:

A. tries to capture the environmental effects regular GDP doesn't.

B. subtracts the environmental costs of production from the positive outputs normally counted in GDP.

C. values negative externalities.








147. Which of the following measures can give some indication of the quality of life in an economy?

A. Child mortality

B. Literacy rates

C. Life expectancy

D. All of these are measures used to assess quality of life.





A. is highly correlated with quality of life.

B. is perfectly correlated with quality of life.

C. is loosely correlated with quality of life.

D. is negatively correlated with quality of life.







149. When maximizing economic growth is a country's goal:

A. it may work in opposition to the country's happiness in terms of satisfaction gained from leisure.

B. it increases the correlation to the country's happiness, because more money makes people happier.

C. it creates a perfect correlation to happiness, if the money is allocated fairly.







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