Chapter 7 - Gdp And The Consumer Price Index The National Accounts Keep Track Everything Except

Page 1

1.

The national accounts keep track of everything EXCEPT:

A)

the spending of consumers and the government.

B)

the sales of producers.

C)

business investment.

D)

exchange rates.

2.

The national income and product accounts keep track of:

A)

consumer spending.

B)

interest rates.

C)

rates of inflation.

D)

exchange rates.

3.

The national income and product accounts keep track of:

A)

consumer debt.

B)

sales and investment spending by businesses.

C)

worker productivity.

D)

unemployment rates.

4.

The national income and product accounts are calculated by:

A)

the Congressional Budget Office.

B)

the Federal Reserve.

C)

the Bureau of Economic Analysis.

D)

the Office of Management and Budget.

5.

The circular-flow diagram illustrates:

A)

the minimum wage state by state.

B)

fluctuations in exchange rates.

C)

changes in worker productivity.

D)

the key concepts in the national accounts.

6.

The circular-flow diagram illustrates all of the following in the U.S. economy EXCEPT:

A)

growing income inequality.

B)

flows of money.

C)

flows of goods and services.

D)

the purchase and sale of factors of production.

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7.

The circular-flow diagram is important because it shows that the flow of money into

each market or sector of the economy is _____ the flow of money coming out of that

sector.

A)

greater than

B)

equal to

C)

less than

D)

unrelated to

8.

In the circular-flow diagram, a person or a group of people who share income is a:

A)

government.

B)

factor.

C)

household.

D)

firm.

9.

In the circular-flow diagram, an organization that produces goods and services for sale

is a:

A)

government.

B)

factor.

C)

household.

D)

firm.

10.

In the circular-flow diagram, the places where goods and services are bought and sold

are the:

A)

product markets.

B)

factor markets.

C)

households.

D)

firms.

11.

In the circular-flow diagram, the places where resources, especially capital and labor,

are bought and sold are the:

A)

product markets.

B)

factor markets.

C)

households.

D)

firms.

12.

In the circular-flow diagram, households:

A)

supply goods.

B)

supply services.

C)

supply resources.

D)

buy resources.

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13.

In the circular-flow diagram, households:

A)

supply goods.

B)

supply services.

C)

buy resources.

D)

buy goods and services.

14.

In the circular-flow diagram, firms:

A)

demand goods.

B)

demand services.

C)

supply resources.

D)

demand resources.

15.

In the circular-flow diagram, firms:

A)

supply goods and services.

B)

demand goods.

C)

supply resources.

D)

demand services.

16.

In the product markets:

A)

households supply goods and services.

B)

households demand goods and services.

C)

firms demand resources.

D)

firms supply resources.

17.

In the product markets:

A)

households supply goods and services.

B)

households supply resources.

C)

firms demand goods and services.

D)

firms supply goods and services.

18.

In the factor markets:

A)

households supply goods and services.

B)

households demand goods and services.

C)

firms demand resources.

D)

firms supply resources.

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19.

In the factor markets:

A)

households supply goods and services.

B)

households supply resources.

C)

firms demand goods and services.

D)

firms supply goods and services.

20.

According to the circular-flow diagram, which of the following economic agents engage

in consumer spending?

A)

firms

B)

households

C)

factor markets

D)

financial markets

21.

A share in the ownership of a company is a(n):

A)

bond.

B)

stock.

C)

dividend.

D)

IOU.

22.

Which of the following would accurately characterize the portion of a firm’s profit paid

to the owner of one share of its stock?

A)

interest

B)

dividend

C)

stock

D)

bond

23.

Which of the following is considered to be an IOU?

A)

stock

B)

bond

C)

interest

D)

dividend

24.

Households derive income from all of the following EXCEPT:

A)

wages or labor income.

B)

interest from lending.

C)

rent from allowing firms to use their land.

D)

imports.

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25.

The total income of households after taxes and government transfers is called:

A)

disposable income.

B)

private savings.

C)

aggregate spending.

D)

investment.

26.

Private savings is equal to:

A)

disposable income less taxes.

B)

disposable income less consumption.

C)

wealth.

D)

wealth plus government transfer payments.

27.

Stock in a company is:

A)

a share of ownership of the company.

B)

an IOU that pays interest.

C)

a portion of a firm’s profits paid to shareholders.

D)

part of private savings.

28.

A bond is:

A)

a share of ownership of a company.

B)

an IOU that pays interest.

C)

a portion of a firm’s profits paid to shareholders.

D)

part of private savings.

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Use the following to answer questions 29-42:

Figure: Circular-Flow Model

29.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. What is GDP in

this economy?

A)

$100

B)

$400

C)

$500

D)

$600

30.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is an increase in consumer

spending, which of the following is likely to happen?

A)

an increase in the nominal GDP

B)

a decrease in the nominal GDP

C)

an increase in the unemployment rate

D)

a decrease in the inflation rate

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31.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is a decrease in consumer spending,

which of the following is likely to happen?

A)

an increase in the nominal GDP

B)

an increase in the real GDP

C)

an increase in the unemployment rate

D)

an increase in the inflation rate

32.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is an increase in investment

spending, which of the following is likely to happen?

A)

a decrease in the nominal GDP

B)

an increase in the nominal GDP

C)

an increase in the unemployment rate

D)

a decrease in the inflation rate

33.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is a decrease in investment

spending, which of the following is likely to happen?

A)

an increase in the nominal GDP

B)

an increase in the real GDP

C)

an increase in the unemployment rate

D)

an increase in the inflation rate

34.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is an increase in government

spending, which of the following is likely to happen?

A)

an increase in the nominal GDP

B)

a decrease in the real GDP

C)

an increase in the unemployment rate

D)

a decrease in the inflation rate

Page 8

35.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is a decrease in government

spending, which of the following is likely to happen?

A)

an increase in the nominal GDP

B)

an increase in the real GDP

C)

an increase in the unemployment rate

D)

an increase in the inflation rate

36.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is an increase in exports, which of

the following is likely to happen?

A)

a decrease in the nominal GDP

B)

a decrease in the real GDP

C)

a decrease in the unemployment rate

D)

a decrease in the inflation rate

37.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is a decrease in exports, which of

the following is likely to happen?

A)

a decrease in the nominal GDP

B)

an increase in the real GDP

C)

a decrease in the unemployment rate

D)

an increase in the inflation rate

38.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it) and there is an increase in imports, which of

the following is likely to happen?

A)

an increase in the nominal GDP

B)

a decrease in the nominal GDP

C)

a decrease in the unemployment rate

D)

an increase in the nominal GDP and in the unemployment rate

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39.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the

circular-flow model is in equilibrium (the sum of money flowing into each box is equal

to the sum of the money flowing out of it), which of the following is likely to happen if

there is a decrease in imports?

A)

an increase in the nominal GDP

B)

a decrease in the nominal GDP

C)

an increase in the unemployment rate

D)

an increase in the nominal GDP, a decrease in the nominal GDP, and an increase in

the unemployment rate

40.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. What are net

exports?

A)

$0

B)

$30

C)

$60

D)

$100

41.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. What is

disposable income?

A)

$0

B)

$100

C)

$400

D)

$500

42.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. How does the

government finance its purchases of goods and services?

A)

by printing money

B)

by taxes

C)

by borrowing

D)

by taxes and borrowing

43.

In the circular-flow model, households:

A)

receive transfer payments from the government.

B)

buy resources in the factor markets.

C)

sell products in the market for goods and services.

D)

issue stocks and bonds to raise capital.

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44.

The indirect ownership of physical capital refers to households owning:

A)

cash.

B)

stock.

C)

savings accounts.

D)

their house.

45.

The money spent on domestically produced final goods and services:

A)

is equal to GDP.

B)

is equal to exports minus imports.

C)

is subtracted in the circular-flow model.

D)

is equal to GDP, is equal to exports minus imports, and is subtracted in the

circular-flow model.

46.

Most households derive the bulk of their income from:

A)

wages.

B)

interest.

C)

profit.

D)

rent.

47.

An example of a government transfer is a(n):

A)

expenditure on an interstate highway.

B)

bequest from a deceased relative.

C)

Social Security payment.

D)

salary for a member of the armed forces.

48.

Which of the following is NOT a government transfer?

A)

unemployment compensation

B)

food stamps

C)

payments by the Defense Department for a new weapons system

D)

Social Security benefits paid to someone who is retired

49.

Disposable income equals:

A)

income plus government transfers minus taxes.

B)

income plus government spending minus taxes.

C)

income minus taxes plus government spending.

D)

income minus taxes minus government transfers.

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50.

The market(s) that channel the excess savings of households into investment spending

by firms is(are):

A)

the stock market.

B)

financial markets.

C)

the international market.

D)

the bond market.

51.

Goods that are produced domestically but sold abroad are:

A)

imports.

B)

exports.

C)

part of domestic consumption.

D)

investment.

52.

Investment spending is spending on:

A)

productive physical capital.

B)

stocks.

C)

mutual funds.

D)

corporate bonds.

53.

Disposable income in a particular period is:

A)

total earned income.

B)

earned income plus government transfer payments.

C)

earned income plus government transfer payments less taxes.

D)

earned income plus government transfer payments less taxes and savings.

54.

Domestically produced goods and services sold to people in other countries are known

as:

A)

imports.

B)

investments.

C)

exports.

D)

transfer payments.

55.

Investment spending is spending on:

A)

productive physical capital.

B)

bonds.

C)

shares of stock.

D)

productive physical capital, bonds, and shares of stock.

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56.

An example of investment spending is the purchase of a:

A)

bond by a banker.

B)

loaf of bread by a restaurant.

C)

new tractor by a farmer.

D)

ticket to a football game by a student.

57.

Government borrowing is:

A)

the amount of funds raised by government in financial markets.

B)

government spending on goods and services.

C)

government tax revenues.

D)

the amount of funds raised by government in the financial markets, government

spending on goods and services, and government tax revenues.

58.

If we add up the consumer spending on goods and services, investment spending,

government purchases of goods and services, and the value of exports, then subtract the

value of imports, we have measured the nation’s:

A)

disposable income.

B)

gross domestic product.

C)

trade deficit.

D)

budget deficit.

59.

Which of the following causes an outflow of funds from a domestic economy?

A)

household savings

B)

government tax collections

C)

government transfer payments

D)

imports

60.

Which one of the following transactions is included in a current year’s GDP as

investment spending?

A)

ABC company purchased 10,000 shares of IBM stock.

B)

Ronnie bought a new BMW.

C)

Anton purchased his friend’s condo.

D)

Maggie bought a play-gym set for her day-care business.

61.

Which one of the following is an example of consumption expenditure?

A)

Samantha bought an oven for her cooking show on Food Network.

B)

Stephanie bought a laptop for her brother.

C)

Jim purchased 200 shares of Google stock.

D)

Herman Smith spent $1,500 to buy a used car for his son.

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62.

A transfer payment is a payment for:

A)

a military transfer to a war zone.

B)

which no services were rendered.

C)

transfer of a debt to a different person.

D)

being transferred to a different city by your employer.

63.

Purchases of foreign-produced goods and services are:

A)

net exports.

B)

exports.

C)

imports.

D)

transfer payments.

64.

Goods that are produced in a particular period but NOT sold in that period:

A)

go into inventory and are called consumption.

B)

end up in inventory and are included in investment.

C)

are finally included in depreciation when they are sold.

D)

are classified as intermediate goods.

65.

Which of the following is consumption?

A)

a new computer purchased by Federal Express for one of its corporate executives

B)

a storage facility for a moving company

C)

a new car purchased for personal use

D)

a dump truck purchased by a demolition company

66.

Inventory is counted as investment because:

A)

it is used for future production.

B)

it is a source of future sales.

C)

it has no opportunity cost.

D)

it is tax deductible.

67.

Which of the following is NOT included in investment spending in the national income

accounts?

A)

new residential construction

B)

the purchase of machinery and other productive physical capital

C)

the purchase of stocks and bonds by a business

D)

spending on inventories

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68.

A laptop computer that is purchased by an accounting firm is considered to be:

A)

consumption spending.

B)

investment spending.

C)

private saving.

D)

a pretax dividend.

69.

An example of investment spending is the:

A)

amount of funds raised by the government in the financial markets.

B)

purchase of government bonds by a private household.

C)

purchase of a freezer by an ice-cream parlor.

D)

purchase of stock shares by a mutual fund.

70.

A laptop computer purchased by a private individual for personal use is considered to

be:

A)

consumption spending.

B)

investment spending.

C)

private saving.

D)

a transfer of income.

71.

Households receive income in the form of all of the following EXCEPT:

A)

wages.

B)

dividends.

C)

interest and rent.

D)

investment spending.

Page 15

Use the following to answer questions 72-82:

Figure: Expanded Circular-Flow Model

72.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. What is GDP?

A)

$200

B)

$700

C)

$1,000

D)

$1,080

73.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. What is the value of net exports?

A)

–$20

B)

$20

C)

$50

D)

$130

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74.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. What is the value of disposable income?

A)

$1,020

B)

$1,000

C)

$870

D)

$850

75.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. How much is total government spending?

A)

$20

B)

$220

C)

$370

D)

$200

76.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. The government has a budget:

A)

surplus of $150.

B)

surplus of $220.

C)

deficit of $70.

D)

deficit of $200.

77.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. How does the government finance its spending?

A)

taxes of $150 plus borrowing of $70

B)

foreign borrowing and sales of stock of $110

C)

investment spending of $120

D)

net exports of $80

78.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. Which of the following is NOT a sector of the economy shown in the

circular-flow model?

A)

households

B)

firms

C)

the rest of the world

D)

factor markets

Page 17

79.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. Which of the following is a type of market?

A)

household

B)

rest of the world

C)

government

D)

financial

80.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. The total flow of funds into and out of financial markets is:

A)

$70.

B)

$110.

C)

$170.

D)

$300.

81.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. The total flow of funds into and out of households is:

A)

$1,020.

B)

$1,000.

C)

$850.

D)

$700.

82.

(Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow

Model. The total flow of funds into and out of the rest of the world is:

A)

$30.

B)

$80.

C)

$160.

D)

$240.

83.

The value, at current market prices, of the final goods and services produced during a

particular period is:

A)

disposable personal product.

B)

gross foreign factor output.

C)

gross personal product.

D)

gross domestic product.

84.

The total of the values added at every stage of production for a good yields:

A)

the total cost of the labor used to produce the good.

B)

the prices of the factors of production used to produce the good.

C)

the final value of the good.

D)

the intermediate value of the good.

Page 18

85.

Gross domestic product is defined as:

A)

consumer spending + government purchases of goods and services + financial

spending + exports – imports.

B)

consumer spending + government transfers + investment spending + exports –

imports.

C)

disposable income + taxes + investment spending + exports + imports.

D)

consumer spending + government purchases of goods and services + investment

spending + exports – imports.

86.

Which of the following is the best definition of GDP?

A)

the total value of all final goods and services produced in the economy during a

given year

B)

the total value of all goods and services produced in the economy during a given

year

C)

the total value of all primary, intermediate, and final goods and services produced

in the economy during a given year

D)

the total value of all goods and services produced and sold in the economy during a

given year

87.

GDP is the total dollar value of all:

A)

intermediate goods and services produced in the economy in a given period.

B)

wages paid to producing workers in a given period.

C)

final goods and services produced in the economy in a given period.

D)

government production in a given period.

88.

GDP is the:

A)

total market value of all final goods and services produced in an economy in one

year.

B)

total accumulated wealth of an economy.

C)

volume of all dollar transactions made in an economy in one year.

D)

dollar amount of all sales made in the economy in one year.

89.

Gross domestic product is the economy’s total production of _____ for a given period.

A)

goods and services

B)

final goods and services

C)

intermediate goods and services

D)

consumer goods and services

Page 19

90.

Which of the following is FALSE? Gross domestic product:

A)

is aggregate output.

B)

is the total production of final goods and services.

C)

grows during an expansion.

D)

is the total production of all final and intermediate goods and services.

91.

Intermediate goods are not counted in GDP because:

A)

to do so would result in double counting.

B)

these goods are not produced for the market.

C)

these goods are produced in the underground economy.

D)

these goods involve financial transactions.

92.

An intermediate good would be:

A)

a new boat to be used for vacations.

B)

lumber used to build a house.

C)

payments to military personnel.

D)

a professor’s salary.

93.

Which of the following is an example of an intermediate good?

A)

stocks and bonds purchased by a business executive

B)

a cellular telephone purchased by a college student

C)

a wedding ring purchased by an engineer for his fiancée

D)

tires General Motors purchased from Goodyear for new electric cars

94.

The equation that breaks GDP down by the four sources of aggregate spending is:

A)

GDP = C + I + G + X + IM.

B)

GDP = C + I + G – X – IM.

C)

GDP = C – I – G – X + IM.

D)

GDP = C + I + G + X – IM.

95.

GDP is:

A)

the total dollar value of all transactions in a year.

B)

the total value of all final goods and services produced in a year.

C)

the total value of all final goods and services produced by Americans at home and

abroad in a year.

D)

the total dollar value of all goods produced in the economy in a year.

Page 20

Use the following to answer question 96:

96.

(Table: Calculating GDP) According to the information in the table Calculating GDP,

what is GDP?

A)

$47,475

B)

$12,200

C)

$21,485

D)

$34,085

97.

GDP is the sum of:

A)

personal consumption, investment, government purchases of goods and services,

exports, and imports.

B)

personal consumption, investment, government purchases of goods and services,

and net exports.

C)

personal consumption, investment, government purchases of goods and services,

and net imports.

D)

value added, net imports, and government purchases of goods and services.

Page 21

Use the following to answer question 98:

98.

(Table: GDP) GDP in the table is:

A)

$94 billion.

B)

$188 billion.

C)

$168 billion.

D)

$139 billion.

99.

The Arcadia Entertainment Co. produced 20,000 DVDs of the movie Thor in 2011.

Only 4,000 copies remained unsold at the end of 2011. As a result:

A)

only 16,000 DVDs should be included in GDP in 2011 as consumption

expenditure.

B)

all 20,000 DVDs will be included in GDP in 2011, 16,000 as consumption

expenditure and 4,000 as investment expenditure

C)

only 16,000 DVDs are included in GDP of 2011; the remaining 4,000 are counted

in GDP of 2012.

D)

all 20,000 DVDs are initially counted in 2011 GDP as consumption expenditure,

but they will be subtracted and added to 2012 GDP as the merchandise gets sold.

100.

In 2011, consumption spending is $7,000, government purchases of goods and services

is $2,000, and investment spending is $1,500. If GDP for 2011 is $10,300, exports are

_____ and imports are _____.

A)

$400; $200

B)

$100; $200

C)

$600; $800

D)

$500; $300

Page 22

101.

Enchanté Inc., a designer clothing company, buys $400 worth of silk and $30 worth of

accessories to produce each dress. If the value added by Enchanté is equal to $200, then

according to the value-added approach, the price of the designer dress should be:

A)

$630.

B)

$230.

C)

$200.

D)

$830.

102.

Boeing buys $3 million worth of steel, $2.5 million worth of computer hardware and

software, and $1 million worth of mechanical tools to manufacture a certain model of

aircraft. Boeing sells this particular model at $10 million. The value added by Boeing is

equal to:

A)

$3.5 million.

B)

$16.5 million.

C)

$13 million.

D)

$15.5 million.

103.

Which one of the following equations is correct?

A)

GDP = C + I + G + IM – X.

B)

GDP = C + I + G + X – IM.

C)

GDP = C + I + G + X + IM.

D)

GDP = C + I + G – T + TR.

104.

Don has built an addition to his house. This transaction will be:

A)

not included in GDP because it is not produced for the marketplace.

B)

included in GDP because Don is a professional builder.

C)

not included in GDP because it is an intermediate good.

D)

included in GDP because building is Don’s hobby.

105.

Which one of the following transactions will be included in the official measurement of

GDP?

A)

Stan sold his house at a huge gain.

B)

Monica illegally downloaded movies to her laptop.

C)

Ben won the state lottery.

D)

Sean bought a new truck.

Page 23

106.

An example of an intermediate good is:

A)

wages paid to an employee.

B)

steel purchased by aircraft manufacturers.

C)

vegetables purchased for your dinner.

D)

electric bills for the office.

107.

Which of the following would NOT be included in this year’s GDP?

A)

the production of a television show

B)

the purchase of a new work truck

C)

the hiring of a new police officer

D)

your purchase of your neighbor’s 2001 Toyota

108.

Which of the following is the best equation for GDP?

A)

GDP = C+ I + G – X + IM

B)

GDP = C + I + G + X – IM

C)

GDP = C + I + G + taxes – value added

D)

GDP = C + I + G + taxes + X + IM

109.

Of the following items, which would NOT be included in GDP?

A)

the dollar value of a repair job done by your cousin on her own car

B)

the dollar value of a lawyer’s service

C)

new car sales by a local dealer

D)

production of new cars that were not sold in the current year

110.

Goods that are produced in a particular period but not sold in that period:

A)

count as consumption in the next year.

B)

are included in investment.

C)

are treated like exports.

D)

are classified as purely financial transactions.

111.

A country’s exports minus its imports during a period are:

A)

net exports.

B)

gross exports.

C)

net imports.

D)

gross imports.

Page 24

112.

Net exports are calculated by subtracting:

A)

imports from exports.

B)

exports from imports.

C)

out all intermediate goods.

D)

I, G, and value added from GDP.

113.

A nation’s exports minus its imports:

A)

equals its private investment.

B)

is net exports.

C)

is always a positive number.

D)

is equal to net transfer payments.

114.

Which of the following would NOT be a part of GDP?

A)

used car sales

B)

new residential construction

C)

a new truck purchased by a building contractor

D)

cable TV service purchased for a home

115.

The total volume of business sales in the economy is much larger than GDP because:

A)

GDP understates the value of total output.

B)

the output approach to measuring GDP excludes intermediate transactions.

C)

GDP includes transfer payments.

D)

GDP excludes exports.

116.

Which of the following would NOT be included in this year’s GDP?

A)

the production of a television show

B)

the purchase of a new hybrid truck

C)

the hiring of a new schoolteacher

D)

your purchase of your neighbor’s house, which was built in 1994

117.

If your professor wins the lottery:

A)

GDP goes up.

B)

GDP goes down.

C)

GDP is not affected.

D)

the economy will be better off.

Page 25

118.

Purchases of _____ are included in GDP.

A)

used goods

B)

newly issued stocks

C)

new foreign-produced investment goods

D)

new capital goods

119.

The dollar value of final goods and services only is counted in GDP because:

A)

we can measure only the value of final goods and services, not the value of inputs.

B)

if we counted the value of all goods, we would count inputs, like the value of steel

in a new automobile, more than once.

C)

intermediate goods reduce GDP.

D)

only final goods and services matter for the economy.

120.

The calculation of GDP includes the value of all of the following goods EXCEPT:

A)

Firestone tires sold at your local garage.

B)

Bridgestone tires purchased by Ford Motor Co.

C)

Goodyear tires purchased by the United States Secret Service.

D)

Michelin tires purchased by Canadian car collectors.

Use the following to answer question 121:

121.

(Table: Furniture Production Schedule) Look at the table Furniture Production

Schedule. What is the total value added at all stages of production of the furniture?

A)

$800

B)

$1,200

C)

$1,800

D)

$2,000

Page 26

122.

Suppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses

the wheat to make flour and then hamburger buns, which it sells to Hamburger Heaven

for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger

Heaven uses the beef and buns to make 10,000 hamburgers, which are sold for $5 each.

How much do these transactions add to GDP?

A)

$86,000

B)

$36,000

C)

$31,000

D)

$50,000

123.

Value added in national income accounts refers to the:

A)

value added by labor to the production process.

B)

difference between the final price and the value of inputs purchased.

C)

difference in profits at various stages of production.

D)

value of all inputs used by the final producer.

124.

Which of the following is included in GDP?

A)

the purchase of 100 shares of Microsoft stock

B)

the purchase of a 1965 Ford Mustang

C)

Social Security payments from the U.S. government to retired people

D)

the purchase of a ticket to a Lady Gaga concert

125.

GDP excludes all of the following EXCEPT:

A)

the value of leisure.

B)

damage to the environment.

C)

the value of housework.

D)

the value of owner-occupied housing.

126.

Which of the following is included in the calculation of GDP?

A)

expenditure on new construction

B)

a retiree’s monthly Social Security check

C)

buying a house built 10 years ago

D)

buying shares of Home Depot stock

127.

Included in GDP is the dollar value of:

A)

a used car sold during the period.

B)

a new car imported during the period.

C)

a new car exported during the period.

D)

100 shares of General Motors stock bought by a retiree.

Page 27

128.

The value of _____ is counted in GDP.

A)

glass for windshields purchased by a car manufacturer

B)

a new car sold by a dealer

C)

a used car sold by a dealer

D)

a share of stock in a car manufacturer

129.

Which of the following transactions is included in the nation’s gross domestic product?

A)

A college student buys a used textbook from his roommate.

B)

A construction company purchases lumber to build a new house.

C)

A college student buys a pizza and has it delivered to her dorm room.

D)

A group of college students volunteer to rake leaves at an assisted living facility for

senior citizens.

130.

If during 2010, the Republic of Sildavia recorded investment spending of $3 billion,

government purchases of $3 billion, consumer spending of $7 billion, imports of $5

billion, government transfers of $1 billion, and exports of $3 billion, Sildavia’s GDP in

2010 was:

A)

$11 billion.

B)

$12 billion.

C)

$13 billion.

D)

$14 billion.

131.

Suppose a consumer buys a Perfect Pizza frozen cheese pizza at the grocery store for

$10. Perfect Pizza purchased the dough and tomato sauce from a food processing

company for $2 and bought the cheese for $1. It sold the pizza to the store for $5. How

much has GDP increased?

A)

$2

B)

$5

C)

$10

D)

$18

132.

Which of the following transactions would NOT be counted in GDP?

A)

Nike builds a retail store.

B)

Your mother buys a pound of Washington-grown apples.

C)

Your mother buys 100 shares of Nike stock.

D)

The Indiana state government pays for repair of a damaged bridge over the Wabash

River.

Page 28

133.

GDP may be calculated as the sum of:

A)

consumer spending, investment spending, government purchases of goods and

services, and exports minus imports.

B)

consumer spending, investment spending, government transfer payments, and

exports minus imports.

C)

consumer spending, investment spending, government purchases of goods and

services, and exports.

D)

exports and imports only.

Use the following to answer question 134:

134.

(Table: Pizza Economy I) Look at the table Pizza Economy 1. GDP in this economy is:

A)

$73,000.

B)

$65,000.

C)

$57,000.

D)

$51,000.

Use the following to answer question 135:

135.

(Table: Pizza Economy II) Look at the table Pizza Economy II. GDP in this economy is:

A)

$74,000.

B)

$45,000.

C)

$29,000.

D)

$16,000.

Page 29

136.

If during 2011 the Republic of Sildavia recorded a value added of $78 billion, wages of

$40 billion, profits of $8 billion, and total sales of $90 billion, the value of intermediate

goods purchased during 2011 in Sildavia was:

A)

$42 billion.

B)

$30 billion.

C)

$12 billion.

D)

$4 billion.

137.

If during 2011, the Republic of Sildavia recorded a GDP of $65 billion, interest

payments of $15 billion, imports of $13 billion, profits of $7 billion, exports of $15

billion, and rent of $7 billion, wages during 2011 in Sildavia were:

A)

$36 billion.

B)

$38 billion.

C)

$51 billion.

D)

$64 billion.

138.

In the United States, consumer spending accounts for approximately _____ of GDP.

A)

50%

B)

60%

C)

70%

D)

80%

139.

The largest component of U.S. GDP is value added in:

A)

household production.

B)

business production.

C)

government production.

D)

production of goods sold overseas.

140.

In the United States, investment spending accounts for approximately _____ of GDP.

A)

6%

B)

16%

C)

24%

D)

33%

141.

In the United States, government spending accounts for approximately_____ of GDP.

A)

5%

B)

10%

C)

20%

D)

30%

Page 30

142.

In 2013, _____ spending was the largest component of U.S. GDP, at approximately

70% of aggregate spending.

A)

government

B)

consumer

C)

investment

D)

net export

143.

The value of all of the following goods EXCEPT _____ is included in the calculation of

aggregate output.

A)

Firestone tires sold at your local garage

B)

a new shower installed in a 1920s house

C)

the six-CD player replacing the factory-mounted radio-cassette player in your car

D)

the tires on brand-new Volvo station wagons

144.

In the United States:

A)

GNP is about twice GDP.

B)

GDP is about twice GNP.

C)

GDP exceeds GNP by depreciation plus indirect business taxes.

D)

GNP and GDP are about equal.

145.

A country’s GNP:

A)

must be larger than its GDP.

B)

is the total factor income earned by residents of a country.

C)

includes factor income earned by foreigners.

D)

excludes factor income earned abroad by Americans.

146.

The most important use of GDP is as a measure of:

A)

the size of the economy.

B)

the level of unemployment.

C)

changes in the price level.

D)

rates of return in financial markets.

147.

The scale most often used to compare economic performance in other years is:

A)

the circular-flow diagram.

B)

GDP.

C)

the business cycle.

D)

fiscal policy.

Page 31

148.

An increase in the value of GDP over time:

A)

is always due to an increase in prices.

B)

is always due to an increase in the production of goods and services.

C)

may be due to an increase in prices, in the production of goods and services, or

both.

D)

may be due to a decrease in prices, in the production of goods and services, or

both.

149.

The person who is usually credited with developing national income accounts is:

A)

Adam Smith.

B)

John Maynard Keynes.

C)

Simon Kuznets.

D)

Milton Friedman.

Use the following to answer questions 150-153:

Table: Measuring GDP

150.

(Table: Measuring GDP) Look at the table Measuring GDP. GDP is equal to:

A)

$500 billion.

B)

$850 billion.

C)

$995 billion.

D)

$1,000 billion.

151.

(Table: Measuring GDP) Look at the table Measuring GDP. Total expenditures on GDP

by the household sector are:

A)

$100 billion.

B)

$150 billion.

C)

$200 billion.

D)

$500 billion.

Page 32

152.

(Table: Measuring GDP) Look at the table Measuring GDP. Government purchases of

goods and services are:

A)

$50 billion.

B)

$100 billion.

C)

$200 billion.

D)

$300 billion.

153.

(Table: Measuring GDP) Look at the table Measuring GDP. Exports are:

A)

–$5 billion.

B)

zero.

C)

$5 billion.

D)

$10 billion.

154.

The inflation-adjusted measure of aggregate output typically used by economists is

called:

A)

aggregate output.

B)

nominal gross national product.

C)

net domestic product.

D)

real gross domestic product.

155.

Real GDP is nominal GDP adjusted for:

A)

double counting.

B)

changes in prices.

C)

population.

D)

imports.

156.

If real GDP rises while nominal GDP falls, then prices on average have:

A)

risen.

B)

fallen.

C)

stayed the same.

D)

decreased and then been offset by an equal increase.

157.

Aggregate output is:

A)

equal to consumer spending on goods and services.

B)

the value of new construction, changes in inventories, and the purchase of physical

capital by businesses.

C)

the total quantity of intermediate goods produced by an economy.

D)

the total quantity of final goods and services produced by an economy.

Page 33

158.

If real GDP falls while nominal GDP rises, then prices on average have:

A)

risen.

B)

fallen.

C)

stayed the same.

D)

Real GDP cannot rise when nominal GDP falls.

159.

The total value of all final goods and services produced in a given year, calculated with

the prices current in the year in which the output is produced is:

A)

real GDP.

B)

nominal GDP.

C)

net exports.

D)

consumption spending.

160.

The total value of all final goods and services produced in a given year, calculated using

the prices of a selected base year is:

A)

real GDP.

B)

nominal GDP.

C)

net exports.

D)

consumption spending.

Use the following to answer questions 161-170:

Table: Lemonade and Cookies

2013 Output

2013 Prices

2014 Output

2014 Prices

Lemonade

200 glasses

$1 per glass

220 glasses

$1 per glass

Cookies

100 cookies

$2 per cookie

100 cookies

$2.25 per cookie

161.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. Nominal GDP in 2013 was:

A)

$400.

B)

$420.

C)

$445.

D)

$820.

Page 34

162.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. Nominal GDP in 2014 was:

A)

$400.

B)

$420.

C)

$445.

D)

$820.

163.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. The growth rate of nominal GDP

from 2013 to 2014 was:

A)

5%.

B)

10%.

C)

11.25%.

D)

45%.

164.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. If 2013 is the base year, real GDP in

2013 was:

A)

$400.

B)

$420.

C)

$425.

D)

$445.

165.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. If 2013 is the base year, real GDP in

2014 was:

A)

$400.

B)

$420.

C)

$425.

D)

$445.

166.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. Assuming 2013 was the base year,

the growth rate of real GDP from 2013 to 2014 was:

A)

5%.

B)

10%.

C)

11.25%.

D)

20%.

Page 35

167.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. The growth of nominal GDP from

2013 to 2014 was due to approximately a _____ increase in prices and approximately a

_____ increase in aggregate output.

A)

11.25%; 0%

B)

0%; 45%

C)

5%; 11.25%

D)

6.25%; 5%

168.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. If 2014 is the base year, real GDP in

2014 was:

A)

$400.

B)

$420.

C)

$425.

D)

$445.

169.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. If 2014 is the base year, real GDP in

2014 was:

A)

$400.

B)

$420.

C)

$425.

D)

$445.

170.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that

an economy produces only lemonade and cookies. Assuming that 2014 was the base

year, the growth rate of real GDP from 2013 to 2014 was:

A)

–5%.

B)

4.7%.

C)

11.25%.

D)

20%.

171.

Consider an economy that produces only DVDs and DVD players. If 10 DVDs are sold

at $20 each and 5 DVD players are sold at $100 each, then nominal GDP is:

A)

$100.

B)

$700.

C)

$1,100.

D)

$900.

Page 36

172.

Consider an economy that produces only DVDs and DVD players. Last year, 10 DVDs

were sold at $20 each and 5 DVD players were sold at $100 each, while this year 15

DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Nominal GDP

this year is:

A)

$100.

B)

$650.

C)

$700.

D)

$500.

173.

Consider an economy that produces only DVDs and DVD players. Last year, 10 DVDs

were sold at $20 each and 5 DVD players were sold at $100 each, while this year 15

DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Real GDP this

year using last year as the base year is:

A)

$100.

B)

$700.

C)

$1,300.

D)

$300

174.

Suppose that nominal GDP is $1,000 in 2009 and $1,500 in 2010. If the overall price

level _____ between 2009 and 2010, we could say that real GDP _____.

A)

increased by 50%; stayed constant

B)

increased by less than 50%; decreased

C)

increased by more than 50%; increased

D)

increased by 50%; increased

Use the following to answer questions 175-179:

175.

(Table: Peanut Butter and Jelly Economy) Look at the table Peanut Butter and Jelly

Economy. In 2011, nominal GDP was ____ and real GDP was _____.

A)

$450; $400

B)

$525; $450

C)

$525; $400

D)

$450; $575

Page 37

176.

(Table: Peanut Butter and Jelly Economy) Look at the table Peanut Butter and Jelly

Economy. From 2010 to 2011 real GDP ____ by _____.

A)

increased; 12.5%

B)

decreased; 50%

C)

increased; 43.75%

D)

decreased; 12.5%

177.

(Table: Peanut Butter and Jelly Economy) Look at the table Peanut Butter and Jelly

Economy. Nominal GDP in 2010 was:

A)

$200.

B)

$400.

C)

$450.

D)

$525.

178.

(Table: Peanut Butter and Jelly Economy) Look at the table Peanut Butter and Jelly

Economy. Between 2010 and 2011, nominal GDP:

A)

increased by 12.5%.

B)

decreased by 12.5%.

C)

increased by 16.67%.

D)

increased by 31.25%.

179.

(Table: Peanut Butter and Jelly Economy) Look at the table Peanut Butter and Jelly

Economy. How much of the increase in nominal GDP between 2010 and 2011 was due

to inflation?

A)

31.25%

B)

18.75%

C)

12.5%

D)

4%

180.

Chained dollars:

A)

is money that banks are required to keep in their vaults to back deposits.

B)

is the measure of the value of intermediate goods.

C)

is a method for calculating changes in real GDP using an early base year and a late

base year.

D)

is a method used to convert real to nominal GDP.

Page 38

181.

Real GDP is:

A)

the value of the production of all final goods and services measured in current

prices.

B)

the value of the production of all final goods and services adjusted for price

changes.

C)

the projected future value of GDP.

D)

calculated by adding up only the real number of all items sold in the United States

regardless of their prices.

Use the following to answer questions 182-185:

Scenario: Real GDP

Suppose that in year 1 an economy produces 100 golf balls that sell for $3 each and 75 pizzas

that sell for $8 each. The next year the economy produces 110 golf balls that sell for $3.25 each

and 80 pizzas that sell for $9 each.

182.

(Scenario: Real GDP) Look at the scenario Real GDP. The value of nominal GDP in

years 1 and 2 respectively is:

A)

$900 and $1,077.50.

B)

$900 and $990.

C)

$180,000 and $257,400.

D)

$1,000 and $1,005.

183.

(Scenario: Real GDP) Look at the scenario Real GDP. Using year 1 as the base year,

real GDP in year 2 is:

A)

$900.

B)

$970.

C)

$1,000.

D)

$1,077.50.

184.

(Scenario: Real GDP) Look at the scenario Real GDP. The growth rate of nominal GDP

from year 1 to year 2 is:

A)

10%.

B)

7.8%.

C)

19.7%.

D)

8.8%.

Page 39

185.

(Scenario: Real GDP) Look at the scenario Real GDP. Using year 1 as the base year, the

growth rate of real GDP from year 1 to year 2 is:

A)

10%.

B)

7.8%.

C)

19.7%.

D)

8.8%.

186.

Nominal GDP may be used to compare:

A)

the dollar amount of final goods produced in different years.

B)

the price of final goods times the number of goods produced in one year.

C)

output if prices are increasing.

D)

living standards among different countries.

187.

Nominal GDP:

A)

has not been adjusted for changes in prices over time.

B)

has been adjusted for changes in prices over time.

C)

is a small or nominal amount of output.

D)

excludes the international sector.

188.

If both aggregate output and the aggregate price level increase:

A)

real GDP will increase faster than nominal GDP.

B)

nominal GDP will increase faster than real GDP.

C)

it makes no difference to real or nominal GDP.

D)

real GDP and nominal GDP will increase faster than the price level.

189.

If nominal GDP increases from one year to the next, _____ must have risen.

A)

prices

B)

real GDP

C)

prices and real GDP

D)

output or prices or both

190.

If nominal GDP decreases from one year to the next, _____ must have fallen.

A)

prices

B)

real GDP

C)

prices and real GDP

D)

output or prices or both

Page 40

191.

If nominal GDP of 2012 was higher than nominal GDP of 2011:

A)

production in 2012 was higher than production in 2011, while prices remained

unchanged.

B)

production or prices or both were higher in 2012 than in 2011.

C)

prices in 2012 were higher than prices in 2011, while production remained

unchanged.

D)

production in 2012 went down and prices increased.

192.

If the price level and nominal GDP both doubled, then real GDP would:

A)

also double.

B)

increase by half.

C)

remain unchanged.

D)

decrease by half.

193.

Real GDP is the same as _____ GDP.

A)

current-dollar

B)

inflation-adjusted

C)

nominal

D)

value-added

194.

Nominal GDP is:

A)

inflation-adjusted GDP.

B)

real GDP minus depreciation.

C)

current-dollar GDP.

D)

constant-dollar GDP.

195.

Government economists have adopted the _____ method of calculating the change in

real GDP, which averages the GDP growth rate according to both an early base year and

a late base year.

A)

cost indexation

B)

straight-line depreciation

C)

chain-linking

D)

fixed base year

196.

Assume that in the base year (2011), a country’s nominal GDP is $10,000 billion. The

country has had 5% inflation each year since 2006. Real GDP of 2011 is equal to:

A)

$10,500 billion.

B)

$11,025 billion.

C)

$10,000 billion.

D)

$9,500 billion.

Page 41

197.

Real GDP tends to understate our economic well-being because it:

A)

includes the value of services produced in the home.

B)

excludes the value of leisure.

C)

includes expenditures on crime prevention equipment.

D)

includes health care costs related to the consumption of cigarettes.

198.

Real GDP tends to overstate our economic well-being by including:

A)

expenditures on crime prevention.

B)

payments for cleaning up the environment.

C)

repairs to structures destroyed by storms.

D)

expenditures on crime prevention, payments for cleaning up the environment, and

repairs to structures destroyed by storms.

199.

A country’s living standard is best measured by:

A)

per capita nominal GDP.

B)

real GDP.

C)

nominal GDP.

D)

per capita real GDP.

200.

Economists frequently use GDP per capita to reflect:

A)

the impact of prices on GDP.

B)

differences in living standards across countries.

C)

people who are employed.

D)

both people who are employed and those who are unemployed.

201.

Real GDP per capita is:

A)

a perfect measure of a country’s standard of living.

B)

the only way to measure living standards among different countries.

C)

an incomplete measure of a country’s standard of living.

D)

used by the United Nations to compare nations based on measures of welfare.

202.

The best available common measure of a nation’s standard of living is:

A)

nominal GDP.

B)

market GDP.

C)

real GDP per capita.

D)

nominal GDP per capita.

Page 42

203.

Dividing real GDP by the population:

A)

results in consumption per capita.

B)

results in nominal GDP per person.

C)

gives real GDP per capita.

D)

is a measure of happiness.

204.

Assume that the real GDP of the United States is approximately $12 trillion and the

population of the United States is approximately 300 million. What is per capita real

GDP?

A)

$4,000

B)

$36,000

C)

$40,000

D)

Real per capita GDP can’t be determined without more information.

Use the following to answer questions 205-214:

Table: Per Capita GDP

Year

Nominal GDP

Price Level

Population

2011

$3,000

$100

5

2014

8,000

200

10

205.

(Table: Per Capita GDP) Look at the table Per Capita GDP. The growth rate of nominal

GDP from 2011 to 2014 was:

A)

37.5%.

B)

60%.

C)

62.5%.

D)

166.7%.

206.

(Table: Per Capita GDP) Look at the table Per Capita GDP. Per capita nominal GDP in

2011 was:

A)

$600.

B)

$400.

C)

$300.

D)

$30.

Page 43

207.

(Table: Per Capita GDP) Look at the table Per Capita GDP. Per capita nominal GDP in

2014 was:

A)

$600.

B)

$800.

C)

$300.

D)

$1,600.

208.

(Table: Per Capita GDP) Look at the table Per Capita GDP. The growth rate of per

capita nominal GDP was:

A)

10%.

B)

20%.

C)

25%.

D)

33%.

209.

(Table: Per Capita GDP) Look at the table Per Capita GDP. If 2011 is the base year, real

GDP in 2011 was:

A)

$500.

B)

$3,000.

C)

$4,000.

D)

$300,000.

210.

(Table: Per Capita GDP) Look at the table Per Capita GDP. If 2011 is the base year, real

GDP in 2014 was:

A)

$400.

B)

$3,000.

C)

$4,000.

D)

$80,000.

211.

(Table: Per Capita GDP) Look at the table Per Capita GDP. The growth rate of real

GDP from 2011 to 2014 was:

A)

10%.

B)

20%.

C)

25%.

D)

33%.

Page 44

212.

(Table: Per Capita GDP) Look at the table Per Capita GDP. Per capita real GDP in 2011

was:

A)

$600.

B)

$400.

C)

$300.

D)

$30.

213.

(Table: Per Capita GDP) Look at the table Per Capita GDP. Per capita real GDP in 2014

was:

A)

$600.

B)

$800.

C)

$300.

D)

$400.

214.

(Table: Per Capita GDP) Look at the table Per Capita GDP. The growth rate of per

capita real GDP from 2011 to 2014 was:

A)

200%.

B)

50%.

C)

–50%.

D)

–33%.

215.

Between 2000 and 2013, the nominal GDP of Venezuela grew by an average of _____

per year, and real GDP grew by an average of _____ per year.

A)

84%; 19%

B)

0%; 50%

C)

29%; 3%

D)

–10%; –2%

Use the following to answer questions 216-222:

Table: Pizza Economy III

2010 units of

output

2010 price per

unit

2011 units of

output

2011 price per

unit

Gino’s pizza

4,000

$10

4,000

$8

Bruno’s spaghetti

3,000

9

1,000

6

Carlo’s cookies

2,000

6

1,000

1

Aldo’s salad

5,000

7

2,000

4

Page 45

216.

(Table: Pizza Economy III) Look at the table Pizza Economy III. Considering 2010 as

the base year, nominal GDP in 2011 was:

A)

$47,000.

B)

$69,000.

C)

$72,000.

D)

$114,000.

217.

(Table: Pizza Economy III) Look at the table Pizza Economy III. Considering 2010 as

the base year, real GDP in 2011 was:

A)

$47,000.

B)

$69,000.

C)

$72,000.

D)

$114,000.

218.

(Table: Pizza Economy III) Look at the table Pizza Economy III. Considering 2010 as

the base year, real GDP between 2010 and 2011 grew at a rate of:

A)

53.19%.

B)

39.47%.

C)

–39.47%.

D)

–58.67%.

219.

(Table: Pizza Economy III) Look at the table Pizza Economy III. Considering 2010 as

the base year, given that total population was 1,140 in 2010 and 1,300 in 2011, real

GDP per capita in 2010 was:

A)

$80.

B)

$53.

C)

$60.

D)

$100.

220.

(Table: Pizza Economy III) Look at the table Pizza Economy III. Considering 2010 as

the base year, given that total population was 1,140 in 2010 and 1,380 in 2011, real

GDP per capita between 2010 and 2011 grew at a rate of:

A)

–50%.

B)

–25%.

C)

50%.

D)

75%.

Page 46

221.

(Table: Pizza Economy III) Look at the table Pizza Economy III. Using 2010 as the base

year, nominal GDP in 2010 was:

A)

$47,000.

B)

$69,000.

C)

$72,000.

D)

$114,000.

222.

(Table: Pizza Economy III) Look at the table Pizza Economy III. Using 2010 as the base

year, real GDP in 2010 was:

A)

$47,000.

B)

$69,000.

C)

$72,000.

D)

$114,000.

223.

The aggregate price level is the:

A)

average price of shares on the stock market.

B)

average price of commodities.

C)

overall level of prices.

D)

same as the average price of gasoline.

224.

Inflation is a(n):

A)

rising aggregate price level.

B)

expansion of output.

C)

rise in wages.

D)

rise in the unemployment rate.

225.

A price index:

A)

always includes a base year.

B)

measures the cost of purchasing a market basket of output across different years.

C)

is normalized to 100 for the base year.

D)

always includes a base year, measures the cost of purchasing a market basket of

output across different years, and is normalized to 100 for the base year.

226.

In a market basket of goods:

A)

the quantities stay constant and the prices may change.

B)

the quantities may change and the prices are held constant.

C)

both the prices and the quantities are held constant.

D)

both the prices and the quantities may change.

Page 47

Use the following to answer questions 227-228:

Scenario: Price Index

Suppose that in the base period a college student buys 20 gallons of gasoline at $2 per gallon, 2

CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is

$2.25 per gallon, CDs cost $12.50 each, and the price of a movie ticket is $7.50.

227.

(Scenario: Price Index) Look at the scenario Price Index. The price index for the second

month is:

A)

94.

B)

106.4.

C)

100.

D)

101.1.

228.

(Scenario: Price Index) Look at the scenario Price Index. The change in prices from the

first to the second month is:

A)

1.1%.

B)

94%.

C)

6.4%.

D)

–6%.

229.

In the Republic of Sildavia, a market basket of goods and services cost $130 in 2009,

$140 in 2010, and $160 in 2011. Based on this information and considering 2009 to be

the base year, the price index in 2011 was:

A)

100.

B)

107.69.

C)

123.07.

D)

130.

230.

In the Republic of Sildavia, a market basket of goods and services cost $130 in 2009,

$140 in 2010, and $160 in 2011. Based on this information and considering 2009 as the

base year, inflation from 2009 to 2011 was:

A)

7.14%.

B)

7.69%.

C)

14.28%.

D)

23.07%.

Page 48

Use the following to answer questions 231-232:

231.

(Table: Market Basket of School Supplies) Look at the table market Basket of School

Supplies. It shows the prices of three common school supplies in 2010 and 2011 and the

quantities of each school supply that consumers bought in 2010, the base year. A school

supply index for 2011 would be:

A)

81.8,

B)

100,

C)

122.2,

D)

124,

232.

(Table: Market Basket of School Supplies) Look at the table market Basket of School

Supplies. It shows the prices of three common school supplies in 2010 and 2011 and the

quantities of each school supply that consumers bought in 2010, the base year. A

school supply index to measure the rate at which average school supply prices have

changed would show an inflation rate of:

A)

22%.

B)

122%.

C)

82%.

D)

18%.

233.

If the cost of a market basket is $200 in year 1 and $230 in year 2, the price index for

year 2 using year 1 as the base is:

A)

100.

B)

115.

C)

130.

D)

200.

234.

If the cost of a market basket is $150 in year 1 and $200 in year 2, the price index for

year 1 using year 2 as the base is:

A)

75.

B)

100.

C)

133.

D)

150.

Page 49

235.

Suppose that the market basket for the university student price index (USPI) consists of

5 textbooks and 100 gallons of gasoline. In 2010, the base year for this index, textbooks

cost $50 each and gas cost $1 per gallon. In 2011, textbooks cost $80 each and gasoline

cost $3 per gallon. The USPI for 2011 is:

A)

100.

B)

150.

C)

200.

D)

250.

236.

Suppose that the market basket for the university student price index (USPI) consists of

4 textbooks and 100 gallons of gasoline. In 2010, the base year for this index, textbooks

cost $50 each and gas costs $1 per gallon. In 2011, textbooks still cost $50 each and

gasoline costs $4 per gallon. The USPI for 2011 is:

A)

250.

B)

200.

C)

150.

D)

100.

237.

The inflation or deflation rate is:

A)

the change in a price index divided by the initial value of the index.

B)

the change in a price index divided by the new index number.

C)

the difference between the initial price index number and the new price index

number.

D)

computed by dividing the old price index number by the new price index number.

238.

Inflation can be measured by the:

A)

percentage change in the consumer price index.

B)

absolute change in the consumer price index.

C)

absolute change in the GDP deflator.

D)

percentage change in GDP.

239.

If the consumer price index is 120 in year 1 and 150 in year 2, then the rate of inflation

from year 1 to year 2 is:

A)

10%.

B)

20%.

C)

25%.

D)

30%.

Page 50

Use the following to answer questions 240-242:

Table: The Consumer Price Index

240.

(Table: The Consumer Price Index) Look at the table The Consumer Price Index. The

approximate rate of inflation in year 3 is:

A)

5%.

B)

10%.

C)

19%.

D)

20%.

241.

(Table: The Consumer Price Index) Look at the table The Consumer Price Index. The

approximate rate of inflation in year 5 is:

A)

25%.

B)

10%.

C)

19%.

D)

20%.

242.

(Table: The Consumer Price Index) Look at the table The Consumer Price Index. The

approximate rate of inflation in year 2 is:

A)

10%.

B)

19%.

C)

20%.

D)

25%.

243.

If the consumer price index changes from 120 to 125 between December 2009 and

December 2010, the:

A)

inflation rate for 2010 is 4.2%.

B)

inflation rate for 2010 is 5%.

C)

deflation rate for 2010 is 5%.

D)

deflation rate for 2010 is 4.2%.

Page 51

244.

If the price index in year 1 is 146 and in year 2 is 163, the rate of inflation between year

1 and year 2 is:

A)

8.2%.

B)

10.43%.

C)

11.64%.

D)

17.0%.

245.

If the consumer price index is 180 in year 1 and 190 in year 2, the inflation rate between

year 1 and year 2 is about:

A)

5.26%.

B)

5.56%.

C)

6.5%.

D)

10%.

246.

Assume that the consumer price index for 2009 was 72.6 and for 2010 was 82.4. What

was the inflation rate between the two years?

A)

0.88%

B)

9.8%

C)

11.9%

D)

13.5%

247.

Assume that the consumer price index for 2009 was 103.9 and for 2010 was 107.6.

What was the inflation rate between the two years?

A)

0.97%

B)

1.04%

C)

3.56%

D)

3.70%

248.

Assume that the consumer price index for 2009 was 124.0 and for 2010 was 130.7.

What was the inflation rate between the two years?

A)

0.95%

B)

5.40%

C)

6.70%

D)

3.20%

Page 52

249.

If the consumer price index for 2009 was 148.3 and for 2010 was 152.5, what was the

inflation rate between the two years?

A)

0.97%

B)

2.83%

C)

4.20%

D)

9.72%

250.

If the consumer price index for 2010 was 160.6 and for 2011 was 163.1, what was the

inflation rate between the two years?

A)

0.25%

B)

1.56%

C)

2.59%

D)

5%

251.

You read in the newspaper that the consumer price index in 2011 was 120. You

conclude that a typical market basket in 2011 would have cost _____ more than the

same market basket purchased in _____.

A)

20%; 2010

B)

120%; 2010

C)

20%; the base year

D)

120%; the base year

Use the following to answer questions 252-253:

252.

(Table: Price Index) Look at the table Price Index. Which year is most likely to be the

base year?

A)

2009

B)

2011

C)

2010

D)

2008

Page 53

253.

(Table: Price Index) Look at the table Price Index. What is the inflation rate between

2010 and 2011?

A)

6.8%

B)

4%

C)

7%

D)

6%

Use the following to answer question 254:

254.

(Table: CPI) Look at the table CPI. Suppose only bread, laptops, and movies are

produced in this economy. Calculate the consumer price index of 2012, using 2008 as

the base year.

A)

81.9

B)

100

C)

75.8

D)

95

Use the following to answer question 255:

255.

(Table: CPI II) Look at the table CPI II. Prices _____ between 2010 and 2011.

A)

fell by 5%

B)

fell by 4%

C)

increased by 4%

D)

increased by 5%

Page 54

Use the following to answer questions 256-263:

Table: Peanut Butter and Jelly

Price in 2012

Price in 2013

Price in 2014

Peanut Butter

$1

$1.10

$1.20

Jelly

2

2.25

2.50

256.

(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a

market basket consists of 20 jars of peanut butter and 10 jars of jelly. What is the value

of the market basket in 2012?

A)

$3

B)

$40

C)

$42

D)

$44.50

257.

(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a

market basket consists of 20 jars of peanut butter and 10 jars of jelly. What is the value

of the market basket in 2013?

A)

$3.35

B)

$40

C)

$42

D)

$44.50

258.

(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a

market basket consists of 20 jars of peanut butter and 10 jars of jelly. What is the value

of the market basket in 2014?

A)

$62

B)

$49

C)

$42

D)

$44.50

259.

(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a

market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2012 is the base

year, what is the value of the price index in 2012?

A)

0

B)

90

C)

100

D)

111.25

Page 55

260.

(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a

market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2012 is the base

year, what is the value of the price index in 2013?

A)

0

B)

90

C)

100

D)

111.25

261.

(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a

market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2012 is the base

year, what is the value of the price index in 2014?

A)

122.5

B)

111.25

C)

90

D)

81.6

262.

(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a

market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2012 is the base

year, what is the rate of inflation between 2012 and 2013?

A)

4.5%

B)

11.25%

C)

22.5%

D)

44.5%

263.

(Table: Peanut Butter and Jelly) Look at the table Peanut Butter and Jelly. Suppose a

market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2012 is the base

year, what is the rate of inflation between 2013 and 2014?

A)

4.9%

B)

11.25%

C)

22.5%

D)

10.1%

264.

The price index in a given year is the cost of the market basket in that year _____ the

cost of the market basket in the base year times 100.

A)

divided by

B)

times

C)

minus

D)

plus

Page 56

265.

If the cost of the market basket in the base year is $2,000 and in 2014 it is $2,100, the

price index for 2014 is:

A)

2,100.

B)

105.

C)

100.

D)

95.

266.

_____ is most widely used to measure inflation in the United States.

A)

producer price index

B)

consumer price index

C)

GDP deflator

D)

national income account

267.

The consumer price index reflects:

A)

changes in the prices of goods and services typically purchased by consumers.

B)

the level of prices for intermediate goods and services purchased by business.

C)

the level of prices for raw materials.

D)

the prices of all goods and services computed from the ratio of nominal GDP to

real GDP.

268.

Which of the following is FALSE? The consumer price index:

A)

reflects changes in the prices of goods typically purchased by consumers.

B)

contains thousands of goods and services.

C)

is calculated by the Bureau of Labor Statistics.

D)

changes only in the base year, every five to seven years.

269.

In the consumer price index of the United States:

A)

the current cost of a basket of goods is compared to the base-period cost of the

same basket of goods.

B)

the base-period index is always equal to 100.

C)

the base period is 1982–1984.

D)

the current cost of a basket of goods is compared to the base-period cost of the

same basket of goods, the calculation of the base-period index is always equal to

100, and the base period is 1982–1984.

Page 57

270.

Approximately how many prices are used to calculate the consumer price index each

month?

A)

9

B)

1,000

C)

80,000

D)

1 million

271.

Which of the following is a measure of changes in the cost of a market basket of raw

commodities, such as steel, electricity, and coal?

A)

GDP deflator

B)

Dow Jones Industrial Average

C)

consumer price index

D)

producer price index

272.

Which of the following measures is likely to respond most quickly to price changes?

A)

GDP deflator

B)

Dow Jones Industrial Average

C)

consumer price index

D)

producer price index

273.

The GDP deflator for a given year is 100 times _____ GDP for that year _____ GDP for

that year.

A)

nominal; divided by real

B)

real; divided by nominal

C)

nominal; minus real

D)

real; plus nominal

274.

The consumer price index is used to set payments from the U.S. government to

individuals. To the extent it is biased upward, this index:

A)

leads to lower benefits.

B)

raises government expenditures.

C)

lowers government expenditures.

D)

leads to lower benefits and raises government expenditures.

275.

Which of the following price indexes measures the cost of living?

A)

producer price index

B)

wholesale price index

C)

consumer price index

D)

GDP deflator

Page 58

276.

The GDP deflator is equal to:

A)

nominal GDP divided by real GDP times 100.

B)

real GDP divided by nominal GDP times 100.

C)

real GDP times nominal GDP times 100.

D)

[(real GDP times nominal GDP) divided by real GDP] times 100.

Use the following to answer questions 277-278:

277.

(Table: GDP II) Look at the table GDP II. Calculate the GDP deflator for 2010.

A)

111

B)

104

C)

90

D)

96

278.

(Table: GDP II) Look at the table GDP II. Calculate the GDP deflator for 2011.

A)

111

B)

104

C)

90

D)

96

279.

Which of the following figures is used to measure changes in the prices that firms pay

for goods and services?

A)

producer price index

B)

consumer price index

C)

GDP deflator

D)

cost of living index

280.

Which of the following statements is TRUE?

A)

The producer price index is just another term for the GDP deflator.

B)

Changes in the producer price index generally follow changes in the consumer

price index.

C)

The producer price index measures the cost of a basket of goods typically

purchased by producers.

D)

The producer price index shows how the cost of all purchases by urban families

changes.

Page 59

281.

The major difference between the producer price index and the consumer price index is

that the produce price index _____ and the consumer price index _____.

A)

is based on retail prices; is based on wholesale prices

B)

measures the cost of living of self-employed workers; measures the cost of living

of salaried workers

C)

generally registers a higher rate of inflation; generally registers a lower rate of

inflation

D)

is based on the cost of a basket typically purchased by producers; is based on the

cost of a basket typically purchased by consumers

282.

The producer price index is often regarded as a warning sign of inflation because:

A)

commodity producers are relatively quick to raise prices.

B)

producers are likely to have monopoly control over prices.

C)

consumers have to pay the prices charged.

D)

commodity producers can sell whatever they want at higher prices.

283.

The purpose of indexing Social Security payments to the consumer price index is to:

A)

increase corporate profits.

B)

justify continued government funding of the Bureau of Labor Statistics.

C)

avoid the privatization of Social Security.

D)

maintain the purchasing power of retirees.

284.

Payments to Social Security recipients are indexed to the rate of inflation, as measured

by the consumer price index. This means that when the rate of inflation increases, the

_____ Social Security recipients _____.

A)

market basket for; increases

B)

market basket for; decreases

C)

payments to; increase

D)

payments to; decrease

Use the following to answer questions 285-299:

Table: Price and Output Data

Page 60

285.

(Table: Price and Output Data) Look at the table Price and Output Data. The value of

year 4’s output in nominal dollars is:

A)

$6.

B)

$24.

C)

$30.

D)

$36.

286.

(Table: Price and Output Data) Look at the table Price and Output Data. The value of

year 2’s output in real dollars is:

A)

$4.

B)

$12.

C)

$15.

D)

$16.

287.

(Table: Price and Output Data) Look at the table Price and Output Data. The value of

year 3’s output in real dollars is:

A)

$5.

B)

$20.

C)

$27.

D)

$36.

288.

(Table: Price and Output Data) Look at the table Price and Output Data. The value of

year 3’s output in nominal dollars is:

A)

$5.

B)

$5.20.

C)

$20.

D)

$36.

289.

(Table: Price and Output Data) Look at the table Price and Output Data. The value of

year 4’s output in real dollars is:

A)

$5.20.

B)

$6.

C)

$30.

D)

$36.

Page 61

290.

(Table: Price and Output Data) Look at the table Price and Output Data. The price index

for year 2 is:

A)

4.

B)

12.

C)

60.

D)

80.

291.

(Table: Price and Output Data) Look at the table Price and Output Data. The price index

for year 4 is:

A)

80.

B)

120.

C)

0.

D)

6.

292.

(Table: Price and Output Data) Look at the table Price and Output Data. Between years

2 and 3, nominal GDP increased by:

A)

33%.

B)

25%.

C)

67%.

D)

8%.

293.

(Table: Price and Output Data) Look at the table Price and Output Data. Between years

2 and 3, real GDP increased by:

A)

10%.

B)

20%.

C)

30%.

D)

33%.

294.

(Table: Price and Output Data) Look at the table Price and Output Data. Between years

2 and 3 the amount of change in nominal GDP due to inflation was:

A)

100%.

B)

34%.

C)

22%.

D)

5%.

Page 62

295.

(Table: Price and Output Data) Look at the table Price and Output Data. Nominal GDP

in year 5 is:

A)

$1.29.

B)

$16.

C)

$45.

D)

$63.

296.

(Table: Price and Output Data) Look at the table Price and Output Data. Real GDP in

year 5 is:

A)

$1.29.

B)

$16.

C)

$35.

D)

$63.

297.

(Table: Price and Output Data) Look at the table Price and Output Data. Between years

4 and 5, nominal GDP increased by:

A)

33%.

B)

75%.

C)

50%.

D)

13%.

298.

(Table: Price and Output Data) Look at the table Price and Output Data. Between years

4 and 5, real GDP:

A)

decreased by 14%.

B)

did not change.

C)

increased by 3%.

D)

increased by 17%.

299.

(Table: Price and Output Data) Look at the table Price and Output Data. Between years

4 and 5, _____ of the increase in nominal GDP was due to inflation.

A)

none

B)

58%

C)

92%

D)

all

Page 63

Use the following to answer questions 300-311:

Table: Real and Nominal Output

300.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. Nominal

GDP in year 4 is equal to:

A)

$40.

B)

$60.

C)

$100.

D)

$280.

301.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. Nominal

GDP in year 2 is equal to:

A)

$40.

B)

$60.

C)

$100.

D)

$280.

302.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. The year

in which the increase in nominal GDP is exclusively due to the increase in the price

level rather than physical output is year:

A)

2.

B)

3.

C)

4.

D)

6.

303.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. The

price index in year 1, using year 3 as the base period, is:

A)

25.

B)

50.

C)

100.

D)

150.

Page 64

304.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. The

price index in year 1, using year 4 as the base period, is:

A)

25.

B)

50.

C)

100.

D)

150.

305.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. In which

year is all of the increase in nominal output due to an increase in real output?

A)

2

B)

3

C)

5

D)

6

306.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. Nominal

output in year 3 is:

A)

$20.

B)

$50.

C)

$100.

D)

$1,500.

307.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. Nominal

output in year 4 is:

A)

$70.

B)

$120.

C)

$140.

D)

$280.

308.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. The

change in nominal output between years 3 and 4 is an increase of:

A)

64%.

B)

100%.

C)

180%.

D)

280%.

Page 65

309.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output.

Assuming year 3 is the base year, real output in year 3 is:

A)

$100.

B)

$120.

C)

$140.

D)

$200.

310.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output.

Assuming year 3 is the base year, real output in year 4 is:

A)

$100.

B)

$120.

C)

$140.

D)

$200.

311.

(Table: Real and Nominal Output) Look at the table Real and Nominal Output. The

change in real output between years 3 and 4 is an increase of:

A)

40%.

B)

100%.

C)

140%.

D)

200%.

312.

The circular-flow diagram illustrates the growth of income inequality in the United

States.

A)

True

B)

False

313.

Flows of money, goods and services, and factors of production through the economy are

all shown in the circular-flow diagram.

A)

True

B)

False

314.

The underlying principle of the circular-flow diagram is that the flows of money into

each sector or market in the economy are greater than those coming out of the sector or

market.

A)

True

B)

False

Page 66

315.

The underlying principle of the circular-flow diagram is that the flows of money into

each sector or market in the economy are equal to those coming out of the sector or

market.

A)

True

B)

False

316.

A firm is an organization that produces goods and/or services for sale.

A)

True

B)

False

317.

A firm is an organization that buys goods and/or services and produces resources.

A)

True

B)

False

318.

A household is a person or group of people who share an income.

A)

True

B)

False

319.

A household is a person or group of people who buy resources and produce goods and

services.

A)

True

B)

False

320.

Households demand goods and services in the product markets.

A)

True

B)

False

321.

Households supply goods and services in the product markets.

A)

True

B)

False

322.

Households demand resources in the factor markets.

A)

True

B)

False

Page 67

323.

Households supply resources in the factor markets.

A)

True

B)

False

324.

Firms demand goods and services in the product markets.

A)

True

B)

False

325.

Firms supply goods and services in the product markets.

A)

True

B)

False

326.

Firms demand resources in the factor markets.

A)

True

B)

False

327.

Firms supply resources in the factor markets.

A)

True

B)

False

328.

The government returns part of the money it raises from taxes in the form of

government transfers.

A)

True

B)

False

329.

For measuring GDP as spending on domestically produced final goods and services,

spending on inputs like steel for manufacturing a car is counted in GDP, but spending

on a new factory in which the cars are produced is NOT counted in GDP.

A)

True

B)

False

330.

Final goods and services are sold to the final or end user.

A)

True

B)

False

Page 68

331.

When Disney builds a new amusement park in the United States, it is counted as part of

GDP.

A)

True

B)

False

332.

Most of the value added included in GDP in the United States is added by businesses

rather than consumers.

A)

True

B)

False

333.

The largest spending category in GDP is consumption.

A)

True

B)

False

334.

If the United States exports $500 of goods and services and imports $700 of goods and

services, net exports are $1,200.

A)

True

B)

False

335.

Steel manufactured to make a car is not counted in aggregate output, but the car that

results is counted.

A)

True

B)

False

336.

Overcounting in the GDP can be avoided by including both final and intermediate

production.

A)

True

B)

False

337.

Renting a car to go on a vacation will result in more GDP than if you used your own car.

A)

True

B)

False

338.

Robert McNamara developed the national income accounts in the early 1970s to

document spending on the Vietnam War.

A)

True

B)

False

Page 69

339.

The most important use of GDP is to measure of the size of the economy, which can be

used to compare economic performance over time or between countries.

A)

True

B)

False

340.

If GDP increases from $10 trillion to $12 trillion in a year, it can only mean that

aggregate output grew by 20%.

A)

True

B)

False

341.

If GDP increases from $10 trillion to $12 trillion in a year, it could mean that aggregate

output grew by 20%, that prices increased 20%, or that prices and aggregate output both

increased.

A)

True

B)

False

342.

The federal government began issuing estimates of gross domestic product and gross

national product during the Civil War.

A)

True

B)

False

343.

GDP in the United States was $5,803 billion in 1994 and $11,734 billion in 2008, so we

can conclude that aggregate output roughly doubled over the 14-year period in the

United States.

A)

True

B)

False

344.

Aggregate output is the sum of consumer spending on goods and services and

investment spending by firms.

A)

True

B)

False

345.

Aggregate output is the total quantity of intermediate goods and services produced in a

year.

A)

True

B)

False

Page 70

346.

Aggregate output is the total quantity of final goods and services produced.

A)

True

B)

False

347.

If real GDP falls when nominal GDP increases, then prices have fallen.

A)

True

B)

False

348.

If real GDP falls when nominal GDP increases, then prices have increased.

A)

True

B)

False

349.

If the dollar amount of GDP decreases, then aggregate output is definitely decreasing.

A)

True

B)

False

350.

The total value of all final goods and services produced in the economy in a given year,

calculated with the prices current in the year in which the output is produced, is nominal

GDP.

A)

True

B)

False

351.

The total value of all final goods and services produced in the economy in a given year,

calculated with the prices current in the year in which the output is produced, is real

GDP.

A)

True

B)

False

352.

Real GDP will increase if aggregate output increases.

A)

True

B)

False

353.

Chain linking is the method of calculating changes in real GDP using averages between

an early base year and a late base year.

A)

True

B)

False

Page 71

354.

Chain linking is a method used to measure the change in real GDP.

A)

True

B)

False

355.

GDP per capita measures the value of all intermediate goods and services produced in

the economy.

A)

True

B)

False

356.

Between 2000 and 2013, the nominal GDP of Venezuela grew by 29% annually because

prices in Venezuela decreased rapidly during the period.

A)

True

B)

False

357.

The aggregate price level is the average of stock prices on the New York Stock

Exchange.

A)

True

B)

False

358.

The aggregate price level is a measure of the overall level of prices in the economy.

A)

True

B)

False

359.

Economists include the prices of only the most important consumer goods, such as food

and energy, in the aggregate price level.

A)

True

B)

False

360.

A market basket used to measure the aggregate price level is a group of stocks that the

wealthiest investors own.

A)

True

B)

False

361.

A market basket is a hypothetical set of consumer purchases of goods and services.

A)

True

B)

False

Page 72

362.

The price index in the current year is the cost of the market basket in the base year

divided by the cost of the market basket in the current year.

A)

True

B)

False

363.

The price index in the current year is the cost of the market basket in the current year

divided by the cost of the market basket in the base year.

A)

True

B)

False

364.

If the cost of the market basket in the base year is $1,000 and the cost of the market

basket in 2013 is $1,080, the price index for 2013 is 80.

A)

True

B)

False

365.

If the cost of the market basket in the base year is $5,000 and the cost of the market

basket in the current year is $5,100, the price index for the current year is 102.

A)

True

B)

False

366.

The price index in the base year is normalized so that it equals 100 in the base year.

A)

True

B)

False

367.

If the price index in year 1 is 110 and the price index in year 2 is 115, then the inflation

rate is exactly 5% from year 1 to year 2.

A)

True

B)

False

368.

The inflation rate is measured as the percentage change per year in a price index.

A)

True

B)

False

369.

If the consumer price index increases from 125 to 130 in one year, the rate of inflation is

5%.

A)

True

B)

False

Page 73

370.

The consumer price index is intended to measure the cost of all goods purchased in the

economy over time.

A)

True

B)

False

371.

The consumer price index measures the cost of the consumption of a family of four

living below the poverty line.

A)

True

B)

False

372.

The consumer price index measures the cost of the consumption of a family of four

living in a typical U.S. city.

A)

True

B)

False

373.

The base period for the consumer price index is 1941–1945.

A)

True

B)

False

374.

The base period for the consumer price index is 1982–1984.

A)

True

B)

False

375.

The consumer price index is calculated by the Congressional Budget Office.

A)

True

B)

False

376.

The consumer price index is calculated by the Bureau of Labor Statistics.

A)

True

B)

False

377.

Spending on medical care is the largest portion of the consumer price index.

A)

True

B)

False

Page 74

378.

Spending on housing is the largest portion of the consumer price index.

A)

True

B)

False

379.

The GDP deflator measures changes in the cost of a market basket of raw commodities,

such as steel, electricity, and coal.

A)

True

B)

False

380.

The producer price index measures changes in the cost of a market basket of raw

commodities, such as steel, electricity, and coal.

A)

True

B)

False

381.

The producer price index is also known as the wholesale price index.

A)

True

B)

False

382.

The Dow Jones Industrial Average is likely to respond more quickly to price changes

than the other indexes, so it is regarded as a warning sign of inflation.

A)

True

B)

False

383.

The producer price index is likely to respond more quickly to price changes than the

other indexes, so it is regarded as a warning sign of inflation.

A)

True

B)

False

384.

The GDP deflator for a given year is equal to 100 times nominal GDP for that year

minus real GDP for that year.

A)

True

B)

False

385.

The GDP deflator for a given year is equal to 100 times nominal GDP for that year

divided by real GDP for that year expressed in prices of a selected base year.

A)

True

B)

False

Page 75

386.

The PPI and the consumer price index are both price indexes.

A)

True

B)

False

387.

The producer price index usually responds to price changes more quickly than the

consumer price index.

A)

True

B)

False

388.

The GDP deflator is another name for the consumer price index.

A)

True

B)

False

389.

Income tax brackets are indexed to the consumer price index.

A)

True

B)

False

390.

The GDP deflator is used to calculate the official estimate of inflation that is used to

index Social Security payments.

A)

True

B)

False

391.

The consumer price index is used to index income tax brackets.

A)

True

B)

False

392.

Explain why each of the following transactions would or would not be counted in the

GDP of the United States.

a. Japanese auto producer Honda builds a factory in Indiana.

b. You buy a new pair of pants produced at a factory in Honduras.

c. You mow your uncle’s yard and he gives you $10 for a job well done.

393.

Explain why each of the following transactions would or would not be counted in the

GDP of the United States.

a. American auto producer Ford builds a factory in Canada.

b. You buy a blueberry muffin at your coffee shop.

c. A Ford dealership in Ohio has 15 unsold new cars at the end of 2011.

Page 76

394.

A single woman attorney hires a local firm to mow the grass, rake the leaves, and trim

the rose bushes. After several years she and the owner of the lawn service fall madly in

love and get married. After the honeymoon, her new husband takes care of the yard

maintenance, and she no longer pays his company the monthly fee. What has happened

to GDP?

395.

Why do economists bother to compute real GDP? Why can’t we just compare nominal

GDP from one year to the next?

Use the following to answer questions 396-397:

396.

(Table: Gadget GDP in Rayistan) Look at the table Gadget GDP in Rayistan. Why is

real GDP per capita used as a measure of a country’s standard of living? What are some

of the limitations of using real GDP as the only measure of a country’s quality of life?

397.

(Table: Gadget GDP in Rayistan) Look at the table Gadget GDP in Rayistan. Rayistan is

a small nation that produces only one good, the gadget. The table shows production and

prices of gadgets for two consecutive years, as well as the population of Rayistan.

a. Compute nominal GDP in 2010 and 2011.

b. Compute real GDP in 2010 and 2011.

c. Has Rayistan’s standard of living, as measured by real GDP per capita, increased,

decreased, or stayed the same?

398.

Suppose Elmer Brown is campaigning for reelection as governor of his state. He claims

that during his first term the state’s citizens are 50% better off, since GDP has increased

from $10 billion to $15 billion. Why might his claim be misguided?

399.

Suppose the consumer price index was 180.5 last year and this year is 202.2. What is the

rate of inflation between last year and this year? What is the rate of inflation between

the base year and this year?

Page 77

Use the following to answer questions 400-401:

400.

(Table: Muffin Price Index) Look at the table Muffin Price Index. A college town has

many small coffee shops, and they all sell muffins. As an economics project you have

been assigned to compile a muffin price index (MPI). The base year is 2009. Use these

data to compute the MPI for each year.

401.

(Table: Muffin Price Index) Look at the table Muffin Price Index. A college town has

many small coffee shops, and they all sell muffins. As an economics project you have

been assigned to compile a muffin price index (MPI). The base year is 2009. Use these

data to compute the rate of inflation in the MPI between:

a. 2009 and 2010.

b. 2008 and 2011.

402.

Explain the difference between the consumer price index and the producer price index.

Which is likely to be the first to indicate inflation?

403.

In the circular-flow diagram, government purchases of goods and services are financed

by:

A)

tax revenues.

B)

tax revenues net of transfer payments.

C)

tax revenues net of transfer payments plus government borrowing from financial

markets.

D)

tax revenues plus government borrowing from financial markets.

404.

The instrument by which a household makes a loan to a firm and the firm pays interest

to the household is known as:

A)

a stock.

B)

a bond.

C)

a transfer payment.

D)

disposable income.

Page 78

405.

Households indirectly own the physical capital used by firms through:

A)

stocks.

B)

bonds.

C)

transfer payments.

D)

private debt.

406.

Private saving by households is:

A)

the portion of disposable income not spent on goods and services.

B)

the portion of income coming from transfer payments.

C)

often larger than consumption spending.

D)

not related to consumption spending.

407.

Investment spending refers to the:

A)

accumulation of financial stock by an individual firm.

B)

addition to the economy’s supply of productive physical capital.

C)

total net value of assets sold to foreigners.

D)

total spending by households.

408.

The construction of new housing is considered part of:

A)

investment spending.

B)

consumption.

C)

government purchases of goods and services.

D)

private saving.

409.

Flows into financial markets are equal to the sum of:

A)

all foreign lending.

B)

foreign lending and purchases of stock plus private saving.

C)

borrowing and stock issues plus foreign borrowing and sales of stock.

D)

private saving.

410.

A decrease in inventories is:

A)

a fall in investment spending that will lead to a drop in sales.

B)

an increase in investment spending that will lead to an increase in sales.

C)

thought to have no impact on investment, since it is not part of investment

spending.

D)

part of government spending.

Page 79

411.

In the circular-flow diagram, the value of household income—the sum of wages,

dividends, interest, rental income, and transfer payments—equals the sum of:

A)

household tax payments.

B)

consumer spending, private saving, and household tax payments.

C)

the money supply.

D)

transfer payments and household tax payments.

412.

Transfer payments:

A)

are a means by which government raises funds.

B)

are a redistribution of funds from one individual to another individual.

C)

are counted in GDP.

D)

is another term for government taxation.

413.

Wages are:

A)

the income households earn by selling their labor.

B)

the interest earned from bonds.

C)

rent earned from the use of land to firms.

D)

the indirect ownership of the physical capital used by firms.

414.

Disposable income is:

A)

income spent on imports.

B)

household income and government transfers less taxes.

C)

gross income.

D)

government transfer payments.

415.

When a firm buys a new machine for its business, it is considered to be:

A)

consumption.

B)

investment spending.

C)

government spending.

D)

private saving.

416.

GDP for a given period measures the:

A)

money circulating through an economy.

B)

market value of the final goods and services produced within the borders of a

country.

C)

market value of the final goods and services produced by the citizens of a country

regardless of their location.

D)

amount of government spending undertaken.

Page 80

417.

An economy’s gross domestic product is made up of:

A)

consumption, saving, investment, and government spending.

B)

consumption, investment spending, government purchases of goods and services,

and net exports.

C)

consumption, saving, inventories, financial markets, and government spending.

D)

consumption and saving.

418.

Suppose only two countries existed. Country A imported $200 million worth of goods

and services from country B. Country B imported $100 million worth of goods and

services from country A. Net exports for country _____ equal _____.

A)

A; $200 million

B)

B; $200 million

C)

A; –$100 million

D)

B; –$100 million

419.

Including intermediate goods in the GDP calculation is:

A)

the value-added method.

B)

double counting.

C)

deflating the value of GDP.

D)

the expenditure method of GDP calculation.

420.

GDP calculated via factor payments includes:

A)

wages, interest payments, rent, and profits.

B)

taxes, wages, interest payments, and rents.

C)

rents, profits, value-added adjustments, and taxes.

D)

consumption, investment, and government.

421.

Which of the following is FALSE? GDP can be calculated by summing:

A)

total market value of all final goods and services produced in a country in a given

year.

B)

all factor payments within a country’s borders in a given year.

C)

the value added for all goods and services.

D)

government spending and tax revenues.

422.

Value added is equal to the value of a company’s:

A)

sales.

B)

sales minus intermediate goods.

C)

intermediate goods.

D)

payments to labor and capital.

Page 81

423.

Which of the following is NOT included in the calculation of GDP?

A)

your granny’s monthly Social Security payment

B)

the new textbook you purchase

C)

a cup of coffee from a vendor

D)

the wages you pay to the employee who cleans your house

424.

Double counting would occur if:

A)

GDP were calculated by adding C, I, G, and NX.

B)

used goods were included in the GDP calculation.

C)

imports were subtracted from GDP.

D)

inventories were added to the GDP calculation.

425.

Purchases of imported products are:

A)

subtracted from GDP.

B)

considered domestic spending, since the money is spent by a domestic consumer.

C)

double counting.

D)

not a part of the GDP calculation.

426.

Spending on inputs is _____ of GDP, and investment spending is _____ of GDP.

A)

part; part

B)

not a part; part

C)

part; not a part

D)

not a part; not a part

Use the following to answer questions 427-429:

Scenario: Good A and Good B

The town of York produces two goods, good A and good B. The

following is information regarding York’s production of these two

goods and their prices over three years.

Year 2009

Year 2010

Year 2011

Quantity of good A

3

4

5

Price of good A

$500

$550

Quantity of good B

10

Price of good B

$2

$4

$5

Page 82

427.

(Scenario: Good A and Good B) Look at the Scenario Good A and Good B. In 2010,

nominal GDP was _____ nominal GDP in _____.

A)

greater than; 2011

B)

greater than; 2009

C)

equal to; 2011

D)

equal to; 2009

428.

(Scenario: Good A and Good B) Look at the Scenario Good A and Good B. With 2009

as the base year, real GDP in 2009 was _____ GDP in _____.

A)

equal to real; 2010

B)

equal to nominal; 2009

C)

greater than real; 2010

D)

greater than nominal; 2011

429.

(Scenario: Good A and Good B) Look at the Scenario Good A and Good B. With 2009

as the base year, real GDP was greatest in:

A)

2009.

B)

2010.

C)

2011.

D)

its base year always.

430.

Real per capita GDP is:

A)

real GDP divided by the population.

B)

real GDP divided by the amount of capital available in the economy.

C)

not a useful measure of human welfare.

D)

rarely used as a tool to compare countries’ possible resources.

Use the following to answer questions 431-433:

Page 83

431.

(Scenario: Market Basket) Look at the scenario Market Basket. What is the value of the

price index in 2011?

A)

100

B)

90

C)

111

D)

132

432.

(Scenario: Market Basket) Look at the scenario Market Basket. What is the rate of

inflation between 2010 and 2011?

A)

–10%

B)

11%

C)

32%

D)

0%

433.

(Scenario: Market Basket) Look at the scenario Market Basket. What is the value of the

price index in 2010?

A)

100

B)

111

C)

90

D)

0

434.

The GDP deflator is:

A)

also known as the wholesale price index.

B)

equal to 100 in the base year.

C)

the ratio of real GDP for year X divided by nominal GDP for year X times 100.

D)

a measure that tracks price changes for consumer goods.

Page 84

Answer Key

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