142. Given the following figures, by approximately what percentage did Aiden’s real income increase
between 2004 and 2005?
Aiden’s 2004 money income = $50,000
Aiden’s 2005 money income = $55,000
2004 CPI = 120.0
2005 CPI = 128.0
a.
zero
b.
3.1 percent
c.
6.7 percent
d.
10 percent
143. Given the following figures, by approximately what percentage did Michael’s real income increase
between 2008 and 2009?
Michael’s 2008 money income = $60,000
Michael’s 2009 money income = $72,000
2008 CPI = 120.0
2009 CPI = 128.0
a.
zero
b.
6.7 percent
c.
12.5 percent
d.
20 percent
144. The GDP deflator is designed to adjust nominal GDP for changes in
a.
the level of transfer payments.
b.
the quality of goods over time.
c.
the costs of economic bads such as pollution and crime.
d.
the general level of prices over time.
145. The GDP deflator is designed to adjust nominal GDP
a.
for changes in the unemployment rate.
b.
for changes in prices.
c.
for problems that arise because of externalities.
d.
for changes in interest rates.
146. The typical bundle of goods and services on which the GDP deflator is based
a.
is narrower than the one used to calculate the CPI.
b.
is updated once every decade.
c.
is the same as the one used to calculate the CPI.
d.
is updated every year.
147. If the GDP deflator in 2011 was 130 compared to a value of 100 during the 2005 base year, this would
indicate that
a.
the inflation rate during 2011 was 30 percent.
b.
the general level of prices during 2011 was 30 percent higher than during 2005.
c.
the inflation rate during 2011 was 130 percent.
d.
nominal GDP grew by 30 percent during 2011.
e.
real GDP was 30 percent higher in 2011 than 2005.
148. If the base year for the GDP deflator is 2005 and the value of the deflator during 2011 is 115, this
indicates that the general level of prices
a.
declined by 15 percent between 2005 and 2011.
b.
increased by 15 percent each year during 2005-2011.
c.
was approximately 15 percent higher in 2011 than in 2005.
d.
was approximately 115 percent higher in 2011 than in 2005.
149. When adjusting nominal GDP for price changes, it is preferable to use the GDP deflator rather than the
consumer price index because the GDP deflator is
a.
calculated for a more general market basket of goods than the consumer price index.
b.
always less than the consumer price index and, thus, is a more stable index.
c.
the sum of the consumer price index and the wholesale price index.
d.
the only price index adjusted annually for changes in the quality of products.
150. When adjusting nominal GDP for price changes, it is preferable to use the GDP deflator rather than the
consumer price index because
a.
the GDP deflator is calculated for a narrow market basket of goods, approximating those
items included in our measure of consumption expenditures.
b.
the GDP deflator calculates changes in the prices of items that more closely approximate
those included in GDP.
c.
the GDP deflator is always less than the consumer price index, and therefore, it is a more
stable index.
d.
the GDP deflator is the sum of the consumer price index and the wholesale price index.
151. Real GDP equals nominal GDP
a.
minus exports.
b.
corrected for changes in the price level.
c.
minus personal income taxes.
d.
minus retail sales taxes.
152. In contrast with nominal GDP, real GDP refers to nominal GDP
a.
minus exports.
b.
minus personal income taxes.
c.
corrected for price changes.
d.
corrected for depreciation.
153. If you wanted to compare the quantity of output of a country across time periods, which of the
following would you use?
a.
the consumer price index
b.
nominal GDP
c.
the GDP deflator
d.
real GDP
154. When economists speak of changes in GDP measured in constant dollars, they mean that
a.
money GDP is constant.
b.
the price level is constant.
c.
a price index has been used to adjust money GDP for the effects of inflation.
d.
the growth rate of money GDP has been adjusted for changes in population.
155. The reporter on one broadcast network says 2011 GDP increased to an all-time high. Commenting on
the same figure, a second reporter says GDP in 2011 was less than in 2010. Which of the following
explanations is consistent with the statements of both reporters?
a.
The first reporter was referring to real GDP, and the second was referring to nominal
GDP.
b.
The first reporter was referring to nominal GDP, and the second was referring to real
GDP.
c.
The first reporter was referring to GDP as measured by the expenditure approach, and the
second was referring to GDP as measured by the income cost approach.
d.
The first reporter was referring to GDP as measured by the income cost approach, and the
second was referring to GDP as measured by the expenditure approach.
156. If nominal GDP increases 4 percent during a year, and real GDP increases 7 percent during the same
year, which of the following must by true?
a.
The total value of GDP must have increased 11 percent during the year.
b.
The general level of prices as measured by the GDP deflator decreased by approximately 3
percent during the year.
c.
The general level of prices as measured by the GDP deflator increased by approximately 3
percent during the year.
d.
Imports must have been about 3 percent larger than exports during the year.
157. If nominal or money GDP increases 6 percent in 2011 (compared to 2010), and real GDP increases 4
percent over the same period, which of the following must be true?
a.
Exports exceeded imports.
b.
The general price level as measured by the GDP deflator fell during 2011.
c.
The economy entered a recession in 2011.
d.
Inflation during 2011 was 2 percent.
158. The change in nominal GDP will always exceed the change in real GDP when nominal GDP is
a.
increasing and prices are unchanged.
b.
increasing and prices are decreasing.
c.
decreasing and prices are decreasing.
d.
increasing and prices are increasing.
159. Suppose, in dollar terms, nominal GDP increased approximately 4 percent during a given year, and
real GDP decreased 1 percent. Which of the following best explains these events?
a.
The money supply increased approximately 4 percent.
b.
Prices decreased approximately 3 percent.
c.
Prices increased approximately 4 percent.
d.
Prices increased approximately 5 percent.
160. Which of the following is true of the chained consumer price index?
a.
It will generally result in a slightly lower figure for the measured annual rate of inflation
than the regular consumer price index.
b.
It makes no allowance for shifts away from goods and services as they become more
expensive.
c.
It considers only changes in the prices of household necessities such as food and clothing.
d.
It holds the quantities of the goods and services used to calculate the index constant over
lengthy time periods.
161. The chained consumer price index
a.
assumes that households purchase the same bundle of goods and services over a lengthy
time period.
b.
adjusts the quantities of the typical bundle purchased each month to reflect the substitution
away from goods that have become more expensive.
c.
reflects changes in the prices of all final goods and services produced domestically by the
citizens of a nation during a period.
d.
will generally result in a higher measured rate of inflation than the regular consumer price
index.
162. Which of the following is the major difference between the chained consumer price index and the
regular consumer price index?
a.
The chained index assumes that households purchase the same bundle of goods over a
lengthy time period; the regular price index makes allowance for shifts away from goods
that have become more expensive.
b.
The chained index makes allowance each month for shifts away from goods that have
become more expensive; the regular consumer price index fails to adjust for these shifts.
c.
The chained consumer price index reflects changes in the prices of all final goods and
services produced during a period, whereas the regular consumer price index reflects only
changes in the prices of goods purchased by households.
d.
The chained consumer price index will generally result in a higher measured rate of
inflation than the regular consumer price index.
163. If nominal GDP increased 2 percent during a year, while real GDP increased 4 percent, the
a.
price level must have increased approximately 2 percent compared to the prior year.
b.
price level must have decreased approximately 2 percent compared to the prior year.
c.
price level must have decreased approximately 50 percent compared to the prior year.
d.
unemployment rate must have increased during the year.
164. Assume that between 1998 and 2008, nominal GDP increased from $7 trillion to $12 trillion and that
the price index rose from 100 to 133.3. Which of the following expresses GDP for 2008 in terms of
1998 prices?
a.
$7.5 trillion
b.
$9.0 trillion
c.
$9.5 trillion
d.
$16.0 trillion
165. One difficulty of computing the value of GDP is that there are no market prices for
a.
exports and imports.
b.
business investments.
c.
government goods and services.
d.
resource values.
166. One of the widely-acknowledged problems with the consumer price index (CPI) as a measure of the
cost of living is that the CPI
a.
fails to account for consumer spending on housing.
b.
accounts only for consumer spending on food, clothing, and energy.
c.
fails to account for the fact that consumers spend larger percentages of their incomes on
some goods and smaller percentages of their incomes on other goods.
d.
fails to account for the introduction of new goods.
167. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants.
This change in behavior, by itself, has
a.
reduced measured GDP.
b.
not affected measured GDP.
c.
increased measured GDP only to the extent that the value of the restaurant meals exceeded
the value of meals previously cooked at home.
d.
increased measured GDP by the full value of the restaurant meals.
168. Over time, people have come to rely more on market-produced goods and less on goods that they
produce for themselves. For example, busy people with high incomes, rather than cleaning their own
houses, hire people to clean their houses. By itself, this change has
a.
caused GDP to fall.
b.
not caused any change in GDP.
c.
caused GDP to rise.
d.
probably changed GDP, but in an uncertain direction; the direction of the change depends
on the difference in the quality of the cleaning that has resulted.
169. GDP is not a perfect measure of welfare because it
a.
treats a dollar spent on candy bars the same as a dollar spent on education
b.
treats a dollar spent on exports the same as a dollar spent on imports
c.
double counts the value of leisure time
d.
double counts depreciation
e.
counts illegal activities in the underground economy
170. Which of the following is a shortcoming of GDP?
a.
GDP excludes changes in inventories.
b.
GDP includes an estimate of illegal transactions.
c.
GDP excludes nonmarket transactions.
d.
GDP excludes business investment spending.
171. In recent years, people have benefited from greater amounts of leisure time. This trend
a.
has caused GDP to rise.
b.
has caused GDP to fall.
c.
made GDP fluctuate randomly
d.
is not accounted for in GDP.
172. If the underground economy is sizable, then GDP will
a.
understate the economy’s performance.
b.
overstate the economy’s performance.
c.
fluctuate unpredictably.
d.
accurately reflect this subterranean activity.
173. Because of transactions which take place in the underground economy, the
a.
GDP calculation tends to overstate the actual value of goods sold in the economy.
b.
GDP calculation tends to accurately portray the value of goods sold in the economy.
c.
GDP calculation tends to understate the actual value of goods sold in the economy.
d.
value of the GDP calculation will be equal to the value of the national income calculation.
e.
value of the GDP calculation through the expenditure approach will be greater then the
value calculated through the income approach.
174. Because GDP does not fully account for improvements in the quality of goods, the GDP calculation
a.
tends to overstate the true value of output in the United States.
b.
tends to understate the true value of output in the United States.
c.
provides an accurate value of output in the United States.
d.
measures the value correctly because price changes always capture the value of quality
changes.
175. Because GDP does not fully account for improvements in the quality of goods,
a.
the inflation rate is understated and real GDP is overstated.
b.
the inflation rate is overstated and real GDP is understated.
c.
both the inflation rate and real GDP are overstated.
d.
both the inflation rate and real GDP are understated.
176. Use of real GDP to measure changes in national output from one period to another can be misleading
if
a.
the price level is different for the two periods.
b.
the share of production carried out in the nonmarket sector is different for the two periods.
c.
the bundle of goods produced during the periods is quite similar.
d.
the size of the export-import sector differs for the two periods.
177. Comparisons of GDP between developed and underdeveloped countries are often misleading because
underdeveloped countries produce
a.
a greater share of their total production in the household sector, which understates their
GDP relative to developed countries.
b.
a smaller share of their total production in the household sector, which understates their
GDP relative to developed countries.
c.
a greater share of their total production in the household sector, which overstates their
GDP relative to developed countries.
d.
a smaller share of their total production in the household sector, which overstates their
GDP relative to developed countries.
178. Which of the following is the most likely side effect of an increase in the relative size of the
underground economy with the passage of time?
a.
The growth rate of real GDP will tend to understate the growth rate of total output.
b.
The growth rate of real GDP will tend to overstate the growth rate of total output.
c.
The GDP deflator will tend to overstate any increase in inflation.
d.
The GDP deflator will tend to understate any increase in inflation.
179. If waitresses and taxi drivers do not report all of their income to the government, GDP will be
understated. This is because the unreported income
a.
involves the introduction of new goods.
b.
is part of the underground economy.
c.
is an example of nonmarket production.
d.
represents an increase in leisure time.
180. If national income accountants fail to make an adequate adjustment for increases in the quality of
goods and services over time,
a.
increases in real GDP will understate the growth rate of real output.
b.
increases in real GDP will overstate the growth rate of real output.
c.
the GDP deflator will overstate the rate of inflation.
d.
the GDP deflator will understate the rate of inflation.
e.
both a and c are correct.
181. GDP will tend to overstate the productive capacity of a country when
a.
economic bads like pollution are produced and then must be cleaned up.
b.
there is a sizable underground economy.
c.
nonmarket production represents a large portion of the economy.
d.
working conditions improve, allowing jobs to be completed safer and faster.
182. Crime currently affects the measurement of GDP such that
a.
expenditures on police protection and detention centers contribute to GDP.
b.
the loss to victims due to crime is subtracted from GDP.
c.
crime is completely ignored because it does not express the economic well-being indicated
by GDP.
d.
expenditures on police protection and detention centers are subtracted from GDP.
183. Which of the following would be most appropriate for the measurement of differences in the average
standard of living of people at different points in time?
a.
nominal GDP
b.
real GDP
c.
nominal GDP per capita
d.
real GDP per capita
184. The primary value of data for real GDP lies in its ability to
a.
reflect the welfare of a society relative to a previous period.
b.
compare a nation’s productivity during two periods widely separated in time.
c.
indicate short-term changes in the output rate of a nation.
d.
indicate how hard the people of a nation are working.
185. Gross domestic product (measured in real dollars) is an important social tool because it provides
a.
observers with a reasonably good index of social progress.
b.
policy makers with a measure of the nation’s total wealth.
c.
policy makers with information about the economy’s current rate of output and the
direction of recent changes.
d.
economists with a reasonably good measure of income inequality.
186. The real GDP data could be properly thought of as
a.
an index of our economic well-being.
b.
a measure of the total wealth of a nation.
c.
an index of total output or productive activity.
d.
an index that measures the size of government.
187. Economists generally use gross domestic product to measure a nation’s total output because it
a.
equals the sales value of all transactions conducted during a period and, thus, can be easily
calculated.
b.
is the best available measure of the market value of all final goods and services produced
during a period.
c.
is unaffected by changes in the prices of products over time.
d.
is a reliable indicator of the social progress of a nation over time.