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Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
The factors of production include
1)
A)
transfers.
B)
investment.
C)
capital.
D)
wages.
Table 11-10
Year
Oranges
Produced
Price of
Oranges
(Dollars)
Shirts
Produced
Price of Shirts
(Dollars)
1998 1,800 $0.90 110 $30
2000 2,000 $1.00 110 $35
The data in Table 11-10 are for a fictional economy that produces only two products: oranges and shirts.
2)
Refer to Table 11-10. Nominal GDP for this fictional economy in 1998 equals
2)
A)
$5,300.
B)
$5,100.
C)
$5,850.
D)
$4,620.
3)
Refer to Table 11-2. Suppose that a simple economy produces only four goods and services: shoes,
DVDs, tomatoes, and catsup. Assume one half of the tomatoes are used in making the catsup and
the other half of the tomatoes are purchased by households. Using the information in the above
table, nominal GDP for this simple economy equals
3)
A)
$6,000.
B)
$8,000.
C)
$7,000.
D)
2,440 units.
4)
Which of the following headlines would be more closely related to what macroeconomists study
than what microeconomists study?
4)
A)
Real GDP grows by 2.3% in the second quarter.
B)
Avocado prices rise due to a late frost in California.
C)
The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years.
D)
Airlines raise ticket prices in response to rising fuel costs.
Scenario 11-1
CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate
goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe
to a consumer for $1,200.
5)
Refer to Scenario 11-1. The value of each canoe in gross domestic product equals
5)
A)
$1,200.
B)
$800.
C)
$400.
D)
$500.
6)
Which of the following is included in both the U.S. GDP and U.S. GNP?
6)
A)
the value of all cars produced by Ford in Mexico
B)
the value of all cars produced by General Motors in the U.S
C)
the value of all cars produced by Toyota in the U.S.
D)
the value of all cars produced by Nissan in Japan and the U.S.
7)
In 2007 which component of GDP had a negative value?
7)
A)
investment
B)
net exports
C)
consumption
D)
government spending
Table 11-4
Consumption expenditures $800
Investment expenditures 300
Government purchases 300
Government transfer payments 400
Exports 300
Imports 100
8)
Refer to Table 11-4. Consider the data above (in billions of dollars) for an economy: Gross
domestic product (in billions of dollars) for this economy equals
8)
A)
$1,400.
B)
$2,200.
C)
$1,600.
D)
$2,100.
9)
Which of the following is likely to increase measured GDP?
9)
A)
Tax rates increase and more people attempt to underreport their income for tax purposes.
B)
Marijuana becomes legal to grow and sell.
C)
The do-it-yourself craze becomes increasingly popular and more people decide to improve
their own homes.
D)
A greater number of women decide to stay at home and provide day care for their children
under age 5.
10)
Gross Domestic Product is calculated by summing up
10)
A)
the total quantity of goods and services in the economy.
B)
the total market value of final goods and services produced in the economy during a period of
time.
C)
the total market value of goods and services in the economy.
D)
the total quantity of goods and services produced in the economy during a period of time.
11)
Macroeconomics, as opposed to microeconomics, includes the study of what determines the
11)
A)
wages paid to employees by Dell.
B)
quantity of Dell employees.
C)
average prices of goods and services in the economy.
D)
price charged for laptop computers by Dell.
12)
If an American firm opens a production facility in India, the total value of the production will be
included in the
12)
A)
gross domestic product of India.
B)
net domestic product of the U.S.
C)
gross domestic product of the U.S.
D)
gross national income of India.
13)
In 2007, Kendall Ford, an automobile dealership, spends $20,000 on a new car lift for its repair
shop, $2,000 on a new copy machine for its sales division, and $500,000 on Ford Motor company
stock. Unsold cars and trucks were valued at $900,000 on January 1, 2007 and unsold cars and
trucks were valued at $600,000 on December 31, 2007. What is Kendall Ford's total investment
spending in 2007?
13)
A)
$922,000
B)
$522,000
C)
$322,000
D)
$22,000
14)
The purchase of a new automobile is included in
14)
A)
investment expenditures.
B)
consumption expenditures on nondurable goods
C)
consumption expenditures on services.
D)
consumption expenditures on durable goods.
15)
The purchase by a foreign government of an airplane produced in the United States is included in
U.S.
15)
A)
net exports.
B)
consumption expenditures.
C)
investment expenditures.
D)
government purchases.
Table 11-3
Consumption expenditures $800
Investment expenditures 200
Government purchases 300
Exports 100
Imports 200
Wages 800
16)
Refer to Table 11-3. Consider the data above (in billions of dollars) for an economy: Gross
domestic product (in billions of dollars) for this economy equals
16)
A)
$1,600.
B)
$1,400.
C)
$1,200.
D)
$2,200.
17)
The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact of the
decline in working hours
17)
A)
decreases U.S. GDP and increases the well-being of a typical working person in the U.S.
B)
increases U.S. GDP and increases the well-being of a typical working person in the U.S.
C)
increases U.S. GDP and decreases the well-being of a typical working person in the U.S.
D)
decreases U.S. GDP and decreases the well-being of a typical working person in the U.S.
18)
Suppose that in 2002 the national income in a country was $200 billion, depreciation was $10
billion, indirect business taxes were $15 billion, and transfer payments were $5 billion. Gross
national product in 2002 was
18)
A)
$230 billion.
B)
$215 billion.
C)
$225 billion.
D)
$180 billion.
19)
Value-added equals the market price of the firm's product minus
19)
A)
depreciation on plant and equipment.
B)
the price of all factors of production.
C)
the price of intermediate goods.
D)
wages and salaries.
20)
Which of the following would be directly counted in GDP in 2007?
20)
A)
kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house
built in 1950
B)
kitchen cabinets purchased from Home Depot in 2007 to be installed in a house built in 1997
C)
kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new
country-style home.
D)
None of the above
21)
The informal sector can be a significant drag on the economies of developing countries because the
firms in the informal sector
21)
A)
sell their goods and services to citizens in other countries.
B)
tend to be smaller and have less capital than firms acting legally.
C)
employ illegal immigrants from other countries.
D)
produce goods and services no one wants.
22)
The GDP deflator in year 2 is 105; year 1 is the base year. This means that, on average, the cost of
goods and services is
22)
A)
105% higher in year 1 than in year 2.
B)
105% higher in year 2 than in year 1.
C)
5% higher in year 1 than in year 2.
D)
5% higher in year 2 than in year 1.
23)
The output of Mexican citizens who work in Texas would be included in the
23)
A)
gross national product of the United States.
B)
gross national product of Mexico.
C)
net national product of the United States.
D)
gross domestic product of Mexico.
24)
Suppose in 2006 you purchased a house built in 2000. Which of the following would be included in
gross domestic product for 2006?
24)
A)
The value of the house in 2000
B)
The value of the house in 2006 minus depreciation
C)
The value of the services of the real estate agent
D)
The value of the house in 2006
25)
In 2007, American Airlines experienced an increase in the demand for its services and this fueled
rising profits. These events were caused by
25)
A)
an economic recession.
B)
an economic expansion.
C)
improved quality of service.
D)
an aggressive marketing campaign.
26)
Depreciation is
26)
A)
the value of worn-out equipment, machinery, and buildings.
B)
the value of the addition to the capital stock.
C)
the value of the decrease in business inventory stocks.
D)
the decline in the value of the stock market, net of dividends.
27)
Investment, as defined by economists, would not include which of the following? General Motors
27)
A)
builds another assembly plant in the U.S.
B)
adds 1,000 new cars to its inventories.
C)
buys a new robotic machine (from a plant in Ohio) to assemble cars.
D)
buys U.S. government bonds.
28)
The sum of the value added of every firm involved in producing all final goods and services
________ gross domestic product.
28)
A)
is sometimes greater than and other times less than
B)
equals
C)
is less than
D)
is greater than
29)
Gross domestic product understates the total production of final goods and services because of the
omission of
29)
A)
the underground economy.
B)
intermediate goods.
C)
exports.
D)
inflation.
30)
National income equals net national product
30)
A)
minus government transfer payments.
B)
minus sales taxes.
C)
plus government transfer payments.
D)
plus sales taxes.
31)
Which of the following is not a true statement about the impact of World War II on the U.S.
economy?
31)
A)
More than 40% of the labor force was in the military or producing war goods.
B)
U.S. GDP increased dramatically from 1941 to 1945.
C)
The war time years were a period of prosperity for U.S. consumers.
D)
Increased production of tanks, ships, planes, and munitions accounted for most of the
increase in GDP.
32)
Legalizing all forms of illegal activities
32)
A)
reduces GDP and the size of the underground economy.
B)
reduces GDP and increases the size of the underground economy.
C)
increases GDP and increases the size of the underground economy.
D)
increases GDP and reduces the size of the underground economy.
Table 11-1
Product Quantity Price
Sweat Shirts 50 $30.00
Dental
Examinations 40 50.00
Coffee Drinks 1,000 3. 00
Coffee Beans 2,000 0.50
33)
Refer to Table 11-1. Suppose that a simple economy produces only four goods and services: sweat
shirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used
in the production of the coffee drinks. Using the information in the above table, nominal GDP for
this simple economy equals
33)
A)
$6,500.
B)
3,090 units.
C)
$4,500.
D)
$7,500.
34)
During a business cycle expansion, total production ________ and total employment ________.
34)
A)
decreases; increases
B)
increases; increases
C)
increases; decreases
D)
decreases; decreases
35)
Macroeconomics seeks to understand
35)
A)
economic growth, business cycles, and inflation.
B)
public choices, private choices, and consumer maximization.
C)
product demand, product cost, and profit maximization.
D)
industry sales, marketing strategies and corporate growth.
36)
The purchase by a Chinese household of a CD produced in the United States is included in U.S.
36)
A)
investment expenditures.
B)
consumption expenditures.
C)
net exports.
D)
government purchases.
Table 11-8
Year
Guns
Produced
Price of Guns
(Dollars)
Butter
Produced
Price of Butter
(Dollars)
2000 80 $5 40 $4
2006 90 $6 60 $10
The data in Table 11-8 are for a fictional economy that produces only two products: guns and butter.
37)
Refer to Table 11-8. Nominal GDP for this fictional economy in 2006 equals
37)
A)
$1,140.
B)
$690.
C)
$880.
D)
$560.
Table 11-11
Year Nominal GDP Real GDP
1998 $8,782 $8,509
1999 $9,274 $8,859
38)
Refer to Table 11-11. The GDP deflator for 1999 equals
38)
A)
105.6.
B)
104.7.
C)
95.5.
D)
104.1.
39)
Suppose that nominal GDP in 2005 was less than real GDP in 2005. Given this information, we
know for certain that
39)
A)
real GDP in 2005 was less than real GDP in the base year.
B)
the price level in 2005 was greater than the price level in the base year.
C)
real GDP in 2005 was greater than real GDP in the base year.
D)
the price level in 2005 was less than the price level in the base year.
40)
To calculate GDP by the expenditure method one must add
40)
A)
labor, natural resources, entrepreneurship, and capital.
B)
consumption spending, investment spending, government spending and exports.
C)
wages, rents, interest, and profits.
D)
consumption spending, investment spending, government spending and net exports.
41)
Which of the following goods is directly counted in GDP?
41)
A)
the lettuce that Subway purchases for its sandwiches
B)
the plastic bags that Subway purchases to wrap its sandwiches
C)
a 12 inch Subway sandwich purchased by a student
D)
the bread that Subway purchases for its sandwiches
42)
Nominal GDP will increase
42)
A)
only if the price level rises.
B)
only if the quantity of final goods and services produced rises.
C)
if either the price level or the quantity of goods and services produced rises.
D)
only if the price level falls.
43)
Increases in real GDP would overstate the increase in the well-being of a country over time if, over
that time period, the
43)
A)
amount of pollution decreased.
B)
average hours worked per week increased.
C)
price level increased.
D)
crime rate decreased.
Table 11-10
Year
Oranges
Produced
Price of
Oranges
(Dollars)
Shirts
Produced
Price of Shirts
(Dollars)
1998 1,800 $0.90 110 $30
2000 2,000 $1.00 110 $35
The data in Table 11-10 are for a fictional economy that produces only two products: oranges and shirts.
44)
Refer to Table 11-10. Real GDP for this economy in 1998 using 2000 as the base year equals
44)
A)
$5,100.
B)
$5,650.
C)
$5,850.
D)
$4,620.
45)
Which of the following could cause nominal GDP to increase, but real GDP to decrease?
45)
A)
The price level rises and the quantity of final goods and services produced falls.
B)
The price level falls and the quantity of final goods and services produced falls.
C)
The price level falls and the quantity of final goods and services produced rises.
D)
The price level rises and the quantity of final goods and services produced rises.
46)
Which of the following could cause nominal GDP to decrease, but real GDP to increase?
46)
A)
The price level rises and the quantity of final goods and services produced rises.
B)
The price level rises and the quantity of final goods and services produced falls.
C)
The price level falls and the quantity of final goods and services produced falls.
D)
The price level falls and the quantity of final goods and services produced rises.
Table 11-15
National Income $1000 billion
Retained earnings not paid as dividends $50 billion
Transfer payments $40 billion
Interest on government bonds $20 billion
Personal Taxes $30 billion
The components of national income for an economy are listed in Table 11-15.
47)
Refer to Table 11-15. What is the level of personal income for this economy?
47)
A)
$1,010 billion
B)
$1,140 billion
C)
$990 billion
D)
$860 billion
48)
If prices in the economy rise then
48)
A)
the purchasing power of a dollar declines.
B)
the purchasing power of a dollar cannot be determined.
C)
the purchasing power of a dollar stays constant.
D)
the purchasing power of a dollar rises.
49)
Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry and have
eight children. Bob stops working for Mary in order to care for the children. What will be the effect
on GDP?
49)
A)
GDP will increase.
B)
GDP will decrease.
C)
GDP will not change.
D)
GDP may increase or may decrease depending on inflation.
50)
Gross domestic product understates the total production of final goods and services because of the
omission of
50)
A)
inflation.
B)
exports.
C)
nonmarket household production.
D)
intermediate goods.
51)
The best measure of the income households actually have available to spend is
51)
A)
national income.
B)
net national income.
C)
disposable personal income.
D)
personal income.
52)
If the GDP deflator in a given year is less than 100 then for that year nominal GDP ________ real
GDP.
52)
A)
may be greater than or less than
B)
is greater than
C)
is less than
D)
equals
53)
The value of what a U.S. owned McDonald's produces in South Korea is included in the U.S.
________ and the South Korean ________.
53)
A)
GNP; GNP
B)
GNP; GDP
C)
GDP; GNP
D)
GDP; GDP
