28) As measured, GDP omits which of the following?
i. Illegal sales of goods and services
ii. Changes in the amount of leisure time
iii. Household production of goods and services
A) i only
B) i and ii
C) ii and iii
D) i and iii
E) i, ii, and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
29) Excluding household and underground production leads to
A) underestimation of real GDP but not nominal GDP.
B) overestimation of real GDP but not nominal GDP.
C) overestimation of both real GDP and nominal GDP.
D) underestimation of both real GDP and nominal GDP.
E) underestimation of real GDP an overestimation of nominal GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
30) Goods and services such as environmental quality, leisure time, and household
production are not included in GDP because they are not
A) productive activities.
B) for consumption.
C) bought in markets.
D) made for proit.
E) really durable goods.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
61
31) Household production, such as baking bread at home, is not included in GDP because it
A) has better quality than the bread in the store.
B) has lower quality than the bread in the store.
C) does not add anything of value to GDP.
D) does not involve a market transaction.
E) is not really production.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
32) The calculation of GDP excludes the value of
A) government expenditure on oice supplies.
B) households’ purchases of shampoo.
C) businesses’ purchase of new machine tools.
D) a family member painting the family home.
E) expenditure on durable goods.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
33) An example of household production excluded from GDP is
A) household cleaning services provided by Merry Maids Incorporated.
B) child care provided by a certiied nanny.
C) tree trimming you provide at your parents’ home.
D) plumbing work completed by Joe Fix-it.
E) lawn care provided by a local lawn care company.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
62
34) Babysitting services the oldest son provides his parents
A) counts as nominal GDP but not real GDP.
B) counts as real GDP but not nominal GDP.
C) counts as real GDP and nominal GDP.
D) does not count as real GDP nor nominal GDP.
E) counts in both real and nominal GDP only if the son is not paid.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
35) As more women decide to work outside the home and therefore hire others to work
around their home, GDP will increase by
A) only the value of the output produced by the newly working women.
B) the value of the output produced by the newly working women minus the value of the
household work they were previously performing.
C) the value of the output produced by the newly working women plus the value of any
household work they are now hiring someone to perform.
D) only the value of the household work they are now hiring someone to perform.
E) the value of the household work they were previously performing minus the value of the
output produced by the newly working women.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
36) Instead of taking the dirty laundry with you when you go back to visit your parents, you
use a Laundromat. Your use of the Laundromat means that
A) GDP will decrease and the country’s standard of living will fall.
B) your parents’ contribution to GDP will increase.
C) GDP will remain the same.
D) what you paid for use of the Laundromat will be included in GDP.
E) real GDP does not change because the clothes are still being laundered but nominal GDP
rises since you are now paying for the service.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
63
37) If you mow the lawn yourself, the lawn mowing is considered household production. If
you pay Larry’s Lawn Service to mow your lawn, the lawn mowing is considered
A) a leisure time activity.
B) a service, that will be counted as part of GDP.
C) a service, but is not counted as part of GDP because it simply replaces a service you
used to perform.
D) rent, and therefore is counted as part of GDP.
E) underground production because it replaces the underground production of you mowing
your lawn.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
38) Pat gives up a $40,000 per year job to stay at home and take care of the house. By so
doing, Pat saves $15,000 in child care and house cleaning services which he now performs
himself. The direct efect on GDP from Pat’s decision is a decrease of
A) $40,000.
B) $55,000.
C) $25,000.
D) $15,000.
E) $30,000.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
39) Which of the following is likely to be an unreported economic activity?
A) a $250,000 bonus paid to the CEO of a company
B) tips paid to a taxi driver
C) the minimum wage paid to a teenager working at a McDonald’s
D) the brokerage fees paid to a broker at Merrill Lynch
E) the purchase of shares of stock in Walgreen’s Pharmacy
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
64
40) The measurement of GDP handles underground production by
A) including the amount produced in this sector of the economy in exactly the same way
that all other production is included.
B) omitting it because underground production is unreported to the government by the
people involved.
C) adding it at ixed prices that change only infrequently.
D) adding an estimate of it because it is diicult to precisely measure underground
production.
E) omitting it because, being illegal, it has no efect on the nation’s total production.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
41) Leisure time is ignored when calculating GDP because leisure time
A) does not afect our standard of living.
B) has been declining over time.
C) is not an economic good.
D) is not bought in a market.
E) is not productive.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
42) Which of the following is NOT included in measured U.S. GDP?
A) the value of the pizzas produced at Pizza Hut in Kansas City
B) the value of leisure time
C) the value of the goods produced at a French owned plant in Atlanta, Georgia
D) the value of the services produced by a lawyer in Tampa, Florida
E) the value of a plane produced by Boeing in Washington and sold to Air France
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
65
43) Which of the following is directly accounted for in the calculation of GDP?
A) the value of one hour of leisure as measured by the hourly wage one would otherwise
earn by working
B) the value of repairing your own kitchen sink as measured by the average rates charged
by local plumbers
C) cash earnings from an illegal poker game
D) improvements in quality of life from the reduction of pollution
E) None of the above items is accounted for in GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: New
AACSB: Relective thinking
44) Mexico City is notorious for its excessive pollution. Mexico’s measure of GDP is
A) decreased by the estimated value of the pollution’s harm.
B) not afected by the estimated value of the pollution’s harm.
C) increased by the estimated value of the pollution’s harm.
D) changed by the pollution only when comparing its GDP with the U.S. GDP.
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
45) A new technology is discovered which results in all new cars producing 50 percent less
pollution. Which of the following is true?
A) GDP will increase to relect the fact that the air we breathe is cleaner.
B) GDP will increase if there is an increase in the production cost and price of the car.
C) GDP increases anytime pollution is reduced.
D) GDP will decrease.
E) Real GDP increases because the air is cleaner, but nominal GDP does not change since
air is free.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
66
46) The calculation of GDP using the income approach EXCLUDES
A) rent.
B) interest.
C) environment quality.
D) wages.
E) proit.
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
47) The Human Development Index was proposed because
A) people confuse nominal GDP and real GDP.
B) nominal GDP and real GDP are subjective measures.
C) of the limitations of real GDP as a measure comparing the standard of living in diferent
nations.
D) the GDP delator changes if the base year is changed.
E) diferent nations have diferent populations.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
48) In the years after 1998, the most severe recession occurred during
A) 1998.
B) 2000-2001.
C) 2008-2009.
D) 1999-2001.
E) 2005.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
67
49) Which of the following is NOT part of the business cycle?
A) recession
B) peak
C) inlation
D) trough
E) expansion
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
50) In the business cycle, what immediately precedes the time when real GDP is falling?
A) recession
B) peak
C) depression
D) trough
E) expansion
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
51) Which of the following goods and services are omitted from GDP?
A) household production
B) capital goods
C) expenditure on resources used to protect the environment
D) government weather satellites
E) services such as hair styling
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
68
52) GDP handles household production by
A) estimating a dollar value of the goods purchased to do housework.
B) estimating a dollar value of the services provided.
C) ignoring it.
D) including it in exactly the same way that all other production is included.
E) including it in real GDP but not in nominal GDP because there are no prices paid for the
work.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
53) The underground economy
A) is measured by government oicials through tax returns.
B) is diicult to describe but easy to measure.
C) includes production that uses illegal workers who are paid less than minimum wage.
D) includes mining production.
E) is estimated by the government and the estimate is part of oicial GDP.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
54) You hire some of your friends to help you move to a new house. You pay them a total of
$200 and buy them dinner at Pizza Hut. Which of the following is true?
A) The $200 should be counted as part of GDP but not the dinner at Pizza Hut.
B) If your friends do not report the $200 on their tax forms, it becomes part of the
underground economy.
C) The dinner at Pizza Hut should be counted as part of GDP, but not the $200.
D) Hiring your friends is an illegal activity and should not be counted in GDP.
E) Neither the $200 nor the dinner should be counted in GDP because both are household
production.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
69
55) The value of leisure time is
A) included in GDP and, in recent years, has become an increasing large part of GDP.
B) excluded from GDP.
C) zero.
D) directly included in GDP but, in recent years, has become a decreasing large part of
GDP.
E) directly included in GDP and, in recent years, has not changed much as a fraction of
GDP.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
56) Leisure time
A) is less valuable to us than the wage we earn for working.
B) has steadily decreased over the years.
C) is not valued as part of GDP.
D) is not an economic good.
E) is included in GDP and has become an increasingly large part of GDP.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
57) When industrial activity increases,
A) GDP decreases because of pollution.
B) pollution does not necessarily increase.
C) health and life expectancy decrease.
D) and real GDP increases, it is the case that in all nations fewer resources are devoted to
protecting the environment.
E) the increase in real GDP is partially ofset by the increase in pollution.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
70