Survey of Economics, 6e (O’Sullivan/Sheffrin/Perez)
Chapter 11 Measuring a Nation’s Production and Income
11.1 The “Flip” Sides of Macroeconomic Activity: Production and Income
1) Macroeconomics differs from microeconomics in that
A) macroeconomics is the study of individual markets, while microeconomics deals with the
nation’s economy as a whole.
B) microeconomics is the study of individual markets, while macroeconomics deals with the
nation’s economy as a whole.
C) macroeconomics focuses principally on social and political issues, while microeconomics
involves the study of a nation’s monetary system.
D) microeconomics focuses principally on social and political issues, while macroeconomics
involves the study of a nation’s monetary system.
2) Which of the following would be a macroeconomic question?
A) How have the retirement benefits in the auto industry changed over time?
B) How has inflation increased over time?
C) How has the price of gold increased over time?
D) How has the number of commercial airline flights decreased over time?
3) Which of the following is a macroeconomic statement?
A) Motorcycle manufacturer productivity decreased by 3% in 2012.
B) The price of cell phones decreased by 18% last year.
C) Real domestic output of seafood increased 12% from 2011 to 2012.
D) The U.S. inflation rate was 2% in 2012.
4) Which of the following is NOT a macroeconomic statement?
A) Aggregate worker productivity decreased by 3% in 2012.
B) The price of cell phones decreased by 18% last year.
C) Gross domestic product in Peru increased 4% from 2011 to 2012.
D) The U.S. inflation rate was 2% in 2012.
5) Macroeconomics
A) studies the behavior of individual consumers, firms and markets.
B) studies the behavior of the economy as a whole.
C) involves the interaction between different countries in specific markets.
D) studies how computer automation has changed economics.
6) Fluctuations in economic performance is one of the two basic issues of macroeconomics. The
other is
A) tracking unemployment.
B) keeping interest rates in check.
C) long-run economic growth.
D) monitoring inflation rates.
7) What are the two critical measures of a nation’s economic health?
A) income and spending
B) sales and taxes
C) wages and raises
D) production and income
8) The circular flow is used to make the point that
A) rising prices never occur during times of unemployment.
B) unemployment only occurs during a recession.
C) production generates income.
D) households purchase factors of production from firms.
9) As depicted in the circular flow diagram, firms
A) demand the goods and services that households supply in product markets.
B) supply the goods and services that households demand in product markets.
C) demand the resources that households supply in product markets.
D) supply the resources that households demand in factor markets.
10) Macroeconomics is the study of individual economic markets.
11) The manner in which a nation’s economy reacts when the measured factors are changed
affects almost every individual.
12) In the study of macroeconomics, production leads to income, and income leads to production
in a continuing cycle.
13) In the circular flow model, firms sell the services of factors of production to households.
14) If the prices of goods begin to rise rapidly, people may find it difficult to maintain their
lifestyles. Explain why.
15) Explain the supply and demand of products, factors of production, and the payments for the
products and factors of production as described in the circular flow diagram.
11.2 The Production Approach: Measuring a Nation’s Macroeconomic Activity Using Gross
Domestic Product
1) The value of all final goods and services produced during a given time period measures a
nation’s
A) gross domestic product.
B) net national product.
C) consumer price index.
D) net exports.
2) If an economy produced 60 pounds of sushi at $12 per pound and 15 gallons of sake at $30
per gallon, the total value of these goods and services would be
A) $450.
B) $720.
C) $1,170.
D) $2,700.
3) If an economy produced 220 pounds of jelly beans at $5 per pound and 90 pounds of gum
drops at $2 per pound in 2012, its real gross domestic product (GDP) was
A) 310 pounds of candy.
B) $180.
C) $1,100.
D) $1,280.
4) We measure gross domestic product by multiplying the quantities of goods by their prices
because it allows us to
A) express the values of products in a common unit of measurement.
B) correct for inflation.
C) directly compare the output of one economy to that of another.
D) calculate the total number of units of goods produced in an economy.
5) Gross domestic product calculations count only final goods and services because
A) these are the only goods and services that are purchased in an economy.
B) counting all goods and services would lead to double-counting of many activities.
C) it is difficult to measure the prices of intermediate goods produced.
D) one cannot calculate the quantities of intermediate goods produced.
6) “Final goods and services” are those that are
A) produced outside the United States.
B) used in the production of other goods and services.
C) double counted in the calculation of GDP.
D) sold to ultimate or final purchasers.
7) A rancher raises sheep. Once a year he shears them and sells the raw wool to a processor who
cleans it and spins it into yarn. The yarn is then sold to a knitting mill, which produces and sells
sweaters. In calculating GDP we would count
A) the raw wool, the yarn and the sweaters.
B) only the yarn and the sweaters.
C) only the sweaters.
D) only the raw wool and the yarn.
8) How does real gross domestic product (GDP) differ from nominal GDP?
A) Nominal GDP controls for price changes, while real GDP does not.
B) Real GDP controls for price changes, while nominal GDP does not.
C) Nominal GDP can be used to directly compare the amount of output produced from year to
year, while real GDP cannot be used for such comparison.
D) There is no difference between nominal GDP and real GDP.
9) When there are sustained increases in real GDP over time, we say that the economy is
undergoing
A) economic stagnation.
B) a recession.
C) economic growth.
D) massive changes in productive capacity.
10) The data presented in the text shows that in the period from 1930-2011, real GDP in the
United States has
A) increased substantially.
B) decreased in every year since 1930.
C) decreased only in recent years.
D) generally remained the same.
11) Which prices are used to measure goods and services in calculating the nominal GDP?
A) past years prices
B) current prices
C) average prices
D) projected prices
12) Which of the following is NOT a component of gross domestic product?
A) net exports
B) government purchases
C) purchases by consumers of used goods
D) purchases by consumers of finished goods
13) How many broad categories are used by economists to define the GDP?
A) 3
B) 4
C) 6
D) 8
14) The largest component of GDP is
A) government spending.
B) consumption expenditures.
C) private investment expenditures.
D) net exports.
15) Which of the following is NOT an example of a consumption expenditure?
A) a digital camera you purchase to take on vacation
B) a new county jail
C) a motorcycle you purchase to ride on the weekends
D) a restaurant meal
16) Which of the following is an example of a consumption expenditure?
A) the construction of a new public library
B) the purchase of a ticket to a New Orleans Saints game
C) the purchase of a new fire truck
D) the salary paid to the mayor of Denver
17) For the purpose of GDP accounting, consumption expenditures include
A) only nondurable goods.
B) only durable goods.
C) both nondurable goods and services.
D) durable goods, nondurable goods, and services.
18) What is the fastest growing component of consumption in the United States?
A) new home construction
B) nondurable goods
C) durable goods
D) services
19) What type of spending is the largest component of the GDP?
A) consumption
B) government purchases
C) net exports
D) investment
20) Blu-ray disc players, iPhones, and hybrid cars are generally considered to be ________
goods.
A) durable
B) nondurable
C) intermediate
D) service
21) Bananas, chocolate bars, chewing gum, orange juice and yogurt are considered to be
________ goods.
A) durable
B) nondurable
C) essential
D) service
22) Going to the dentist would be counted in GDP as
A) crowns and fillings.
B) insurance utilization.
C) a service.
D) a measure of welfare.
23) Suppose that a sporting goods store had $800 of golf balls on its shelves at the beginning of
2012 and $1,300 at the end of 2012. The amount of inventory investment included in GDP would
be
A) $500.
B) $800.
C) $1,300.
D) $2,100.
24) Which of the following is NOT a component of private investment, for purposes of GDP
accounting?
A) newly produced housing
B) additions to firms’ stock of inventories
C) purchases by firms of used machinery
D) newly built factories
25) Gross investment is
A) what is left over from total new private investment after depreciation.
B) the total amount of private investment purchases, whether new or previously existing.
C) the total amount of new private investment purchases.
D) the wear and tear on private investment.
26) Depreciation is
A) what is left over from total new private investment after use for a year.
B) the total amount of private investment purchases, whether new or previously existing.
C) the total amount of new private investment purchases.
D) the wear and tear on private investment.
27) Net investment is
A) what is left over from total new private investment after depreciation.
B) the total amount of private investment purchases, whether new or previously existing.
C) the total amount of new private investment purchases.
D) gross investment plus depreciation.
28) If in the third quarter of 2012 total investment spending was $4,768 billion and depreciation
was $3,292 billion, then the amount counted in GDP, which is known as gross investment, would
be
A) $1,476 billion.
B) $3,292 billion.
C) $4,768 billion.
D) $8,060 billion.
29) If in the third quarter of 2012 total investment spending was $4,768 billion and depreciation
was $3,292 billion, then net investment was equal to
A) $1,476 billion.
B) $3,292 billion.
C) $4,768 billion.
D) $8,060 billion.
30) Which of the following is NOT an example of private investment expenditure?
A) new plants and equipment added during the year
B) new houses built during the year
C) using credit cards to purchase durable and nondurable goods
D) increases in inventories on goods produced during the year
31) The majority of spending in the category of government purchases comes from
A) the federal government.
B) state and local governments.
C) transfer payments.
D) military spending.
32) For the purposes of GDP accounting, government purchases include
A) the purchases of new military equipment.
B) social security payments.
C) direct transfer payments by the government to other individuals.
D) welfare payments.
33) For the purposes of GDP accounting, government purchases
A) are considered part of investment.
B) are considered part of consumption.
C) include transfer payments.
D) include wages and benefits paid to government workers.
34) Social security payments are examples of
A) nondurable goods.
B) durable goods.
C) services.
D) transfer payments.
35) Transfer payments are excluded from government purchases in GDP accounting because
A) they are difficult to measure.
B) they are a reward to individuals who have been productive their entire lives.
C) they are already included as part of investment.
D) nothing is being produced in return for the payment.
36) A nation’s net exports consist of
A) its exports plus its imports.
B) its exports minus its imports.
C) its exports plus all other nation’s imports.
D) its imports plus all other nation’s exports.
37) Net exports include goods produced
A) domestically that are sold domestically, less goods produced domestically that are sold
abroad.
B) domestically that are sold abroad, less goods produced domestically that are sold
domestically.
C) domestically that are sold abroad, less goods that are produced abroad that are sold
domestically.
D) abroad that are sold domestically, less goods that are produced domestically that are sold
abroad.
38) Which of the following should be included in U.S. GDP?
A) a 3D television manufactured in Thailand and sold in the United States
B) a 3D television manufactured in Thailand by a U.S. firm and sold in the United States
C) a 3D television manufactured in the United States and sold in Thailand
D) a used 3D television manufactured in the United States and sold in Thailand
39) A trade surplus occurs when
A) a country purchases more from abroad than other countries purchase from it.
B) a country sells more abroad than it purchases from abroad.
C) a country’s firms open more stores abroad than foreign firms open in the country.
D) foreign firms open more stores in a country than the country opens in foreign countries.
40) Exports ________ GDP and imports ________ GDP.
A) increase; decrease
B) decrease; increase
C) increase; increase
D) decrease; decrease
41) GDP is supposed to measure the goods ________ the United States.
A) purchased in
B) produced in
C) imported to
D) exported to
42) When considering imports and exports, economists include the ________ as a component of
the GDP.
A) total imports
B) total exports
C) net exports
D) gross exports
43) A “trade deficit” occurs when
A) we sell more to other countries than we buy from them.
B) we buy more from other countries than we sell to them.
C) we sell more to one country than another.
D) we sell less to one country than another.
44) The GDP equation is
A) Y = C + I + G + NX.
B) Y = C – I – G – NX.
C) C + I = G + NX.
D) C + I = Y + G + NX.
45) Intermediate goods are not counted as part of gross domestic product.
46) The value of goods produced in a previous year but sold in the current year is added to the
GDP for the current year.
47) “Nominal GDP” is a measure of GDP that adjusts for price changes.
48) Nominal GDP uses current year prices to measure GDP.
49) The four components of GDP are consumption expenditures, private investment
expenditures, government purchases, and transfer payments.
50) As a component of GDP, consumption expenditures refers to purchases by consumers of
currently produced goods and services.
51) In the GDP accounts, investment includes the purchase of newly issued shares of stock.
52) To an economist, “investment” in the GDP accounts means purchases of new final goods and
services by firms.
53) Depreciation is the term used when plants, equipment and housing deteriorate and wear out,
thus losing their original values.
54) The majority of spending in the government purchases category comes from the federal
government.
55) In the determination of production of goods or services with respect to GDP, transfer
payments are included.