69. Suppose you have data on durable goods, nondurable goods, fixed investment, government purchases, exports, and
imports. Can you compute GDP?
a.
No, since data on services and profits are missing.
b.
No, since data on inventory investment and profits are missing.
c.
No, since data on inventory investment and services are missing.
d.
No, since data on services and dividends are missing.
e.
Yes, all of the necessary components of GDP are given.
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70. Which of the following statements is true?
a.
Government purchases is the largest component of GDP.
b.
Net exports are equal to exports plus imports.
c.
U.S. imports refer to the physical quantity of foreign-produced goods that are purchased by residents of the
United States.
d.
Government purchases includes the spending on goods and services by all levels of government (federal, state,
and local).
e.
c and d
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71. Look at the following data: GDP = $11,920 billion; investment = $2,100 billion; exports = $500 billion; government
purchases = $1,450 billion; consumption = $8,500 billion. What does import spending equal?
a.
$630 billion
b.
$370 billion
c.
$1,320 billion
d.
$430 billion
e.
$474 billion
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72. Increases in import spending _____________________, ceteris paribus.
a.
raise GDP
b.
lower GDP
c.
are always equal to decreases in exports
d.
may raise or lower GDP
b
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73. Which of the following statements is false?
a.
Domestic income is the total income earned by the people and businesses within a country’s borders.
b.
National income is the total income earned by U.S. citizens and businesses, no matter where they reside or are
located.
c.
Corporate profits is the largest component of national income.
d.
National income = compensation of employees + proprietors’ income + corporate profits + rental income + net
interest.
1
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74. You have data for compensation of employees, proprietors’ income, rental income, and net interest. Can you compute
national income?
a.
b.
c.
d.
e.
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75. Which of the following is the correct equation for computing personal income?
a.
Personal income = National income + undistributed profits – social insurance taxes – corporate profits taxes +
transfer payments.
b.
Personal income = National income – undistributed profits – social insurance taxes + corporate profits taxes +
transfer payments
c.
Personal income = National income – taxes
d.
Personal income = National income – undistributed corporate profits – social insurance taxes – corporate profits
taxes + transfer payments
e.
none of the above
76. Look at the following data: personal income = $4,900 billion; personal taxes = $900 billion; transfer payments = $980
billion. What is disposable income?
a.
$3,200 billion
b.
$4,000 billion
c.
$4,980 billion
d.
$1,880 billion
e.
There is not enough information to answer the question.
b
1
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77. Which of the following statements is true?
a.
National income accountants consider the portion of corporate profits that is used to pay corporate profits
taxes to be income earned by households but not received.
b.
Net domestic product (NDP) is a smaller dollar amount than GDP.
c.
Personal income includes transfer payments.
d.
b and c
e.
a, b, and c
1
Moderate
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78. An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2, and $3, respectively.
Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP?
a.
$180
b.
$200
c.
$140
d.
$240
e.
none of the above
1
Challenging
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79. Why do economists prefer to compare Real GDP figures for various years instead of GDP figures?
a.
Because when GDP in one year is higher than in another year, there is no way to tell why it is higher. Is it
because output is higher, prices are higher, etc.? This is not the case with Real GDP. If Real GDP is higher in
one year than in another year, it is because output is higher.
b.
Because when GDP in one year is higher than in another year, there is no way of knowing if the quality of
goods produced is higher in one year than the other. This is not the case with Real GDP. If Real GDP is higher
in one year than in another year, it is because the quality of the goods produced is higher.
c.
Actually the question is incorrect. Economists prefer to compare GDP figures instead of Real GDP figures.
d.
Because Real GDP is easier to compute than GDP.
e.
Because when GDP in one year is higher than in another year, there is no way to tell if the quality of life is
higher in one year than the other. This is not the case with Real GDP. If Real GDP is higher in one year than in
another year, it is because the quality of life is higher.
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80. If Real GDP was $8,742 billion in year 2 and it had been $8,509 billion in year 1, what was the approximate economic
growth rate during this time period?
a.
9.73 percent
b.
2.67 percent
c.
3.58 percent
d.
2.74 percent
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81. Which of the following statements is true?
a.
Another name for capital consumption allowance is depreciation.
b.
When there are two consecutive quarterly declines in Real GDP the economy is said to be in recession (based
on the standard definition).
c.
In the expansion phase of a business cycle, Real GDP rises beyond the recovery.
d.
a and b
e.
a, b, and c
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82. What is the proper sequence of the phases of a business cycle?
a.
peak, contraction, trough, expansion, recovery
b.
peak, contraction, recovery, trough, expansion
c.
peak, contraction, trough, recovery, expansion
d.
contraction, peak, trough, recovery, expansion
e.
recovery, trough, peak, expansion, contraction
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83. A business cycle refers to the
a.
continued expansion in Real GDP.
b.
recurrent swings (up and down) in Real GDP.
c.
continued decline in Real GDP.
d.
period when Real GDP grows at unusually high rates.
e.
none of the above
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84. What does annual economic growth refer to?
a.
annual increases in GDP
b.
annual increases in consumption spending
c.
annual increases in investment spending
d.
annual increases in Real GDP
e.
none of the above
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85. The sum of durable goods, nondurable goods, and services equals
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a.
investment.
b.
fixed investment.
c.
government purchases.
d.
consumption.
e.
net exports.
86. Investment equals inventory investment added to
a.
business purchases of new capital goods.
b.
purchases of new residential housing.
c.
fixed investment.
d.
business purchases of new capital goods and purchases of new residential housing.
e.
either c or d
1
Challenging
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87. Which of the following statements is false?
a.
For purposes of computing GDP, the purchases of new residential housing are considered investment although
it is undertaken by the household sector.
b.
Consumption includes spending on durable goods but not spending on services.
c.
Investment includes fixed investment but not inventory investment.
d.
b and c
d
1
Moderate
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88. Consumption expenditures in the U.S. usually account for approximately __________ percent of GDP.
a.
40
b.
50
c.
60
d.
70
e.
80
d
d
1
Easy
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89. Suppose that net exports are -$300 billion and exports are $500 billion. Imports must be equal to
a.
$800 billion.
b.
$400 billion.
c.
$200 billion.
d.
-$200 billion.
e.
There is not enough information to answer this question.
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90. Suppose that consumption spending is $4,200 billion, spending on durable goods is $1,200 billion, and spending on
services is $2,000 billion. What does spending on nondurable goods equal?
a.
$7,200 billion
b.
$1,000 billion
c.
$2,200 billion
d.
$3,200 billion
e.
There is not enough information to answer this question.
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91. Suppose that inventory investment is $20 billion and (total) investment is $680 billion. What does purchases of newly
produced capital goods equal?
a.
$715 billion
b.
$785 billion
c.
$750 billion
d.
$35 billion
e.
There is not enough information to answer this question.
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92. Suppose that nondurable goods spending is $200 billion, durable goods spending is $400 billion, new residential
housing spending is $500 billion, and spending on services is $700 billion. What does consumption equal?
a.
$600 billion
b.
$1,100 billion
c.
$1,800 billion
d.
$1,300 billion
e.
There is not enough information to answer this question.
93. Suppose that fixed investment is $550 billion and (total) investment is $630 billion. What does inventory investment
equal?
a.
$80 billion
b.
$550 billion
c.
$630 billion
d.
$1,180 billion
e.
There is not enough information to answer this question.
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94. In the business cycle, what is the difference between the recovery phase and the expansion phase?
a.
The expansion phase occurs in the rising portion of the business cycle, while the recovery phase occurs in the
falling portion of the business cycle.
b.
The expansion phase occurs in the falling portion of the business cycle, while the recovery phase occurs in the
rising portion of the business cycle.
c.
The expansion phase is the period when Real GDP increases beyond the recovery phase.
d.
The expansion phase must always come before the recovery phase.
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95. Which of the following is always a characteristic of the contraction phase of the business cycle?
a.
lower unemployment rates
b.
a decline in Real GDP
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c.
higher inflation rates
d.
a decline in GDP
e.
all of the above
96. When computing national income, which of the following is included in compensation of employees?
a.
wages and salaries paid to employees
b.
employers’ contributions to Social Security and employee benefit plans
c.
the monetary value of fringe benefits, tips, and paid vacations
d.
all of the above
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97. GDP can rise as a result of a rise in __________________, and Real GDP can rise as a result of a rise in
_______________________.
a.
prices or output; prices only.
b.
prices only; prices or output.
c.
prices or output; output only.
d.
prices or output; prices or output.
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98. In 1820 the country with the highest per capita GDP was ______________________. In 1900 the country that ranked
#1 in terms of per capita GDP was ___________________ and fifty years later the top ranking was held by
_________________________.
a.
the Netherlands; New Zealand; the United States.
b.
the Netherlands; Australia; Switzerland.
c.
the United States; the United States; the United States.
d.
Austria; Australia; New Zealand.
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99. In 1900, the country with the highest per capita GDP was
a.
Australia.
b.
New Zealand.
c.
the United States.
d.
Belgium.
e.
the Netherlands.
b
1
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100. In 1820, the country with the highest per capita GDP was
a.
Australia.
b.
the United States.
c.
Austria.
d.
Germany.
e.
the Netherlands.
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101. Which of the following is a point made by economist Richard Easterlin (for whom the Easterlin Paradox is named)
based on his research?
a.
Rich people tend to be happier than poor people in the same country.
b.
People in richer countries tend to be no happier than people in poorer countries.
c.
People in richer countries tend to be much happier than people in poorer countries.
d.
People in poorer countries tend to be much happier than people in richer countries.
e.
a and b
1
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Exhibit 7-3
Durable goods
$3,000
Services
6,000
Business purchases of capital goods
400
Fixed investment
850
Exports
600
Imports
800
Nondurable goods
700
Inventory investment
200
Government transfer payments
100
Purchases of new residential housing
450
Government purchases
900
102. Refer to Exhibit 7-3. Consumption is equal to
a.
$3,700.
b.
$9,000.
c.
$10,150.
d.
$8,200.
e.
$9,700.
1
Moderate
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New
103. Refer to Exhibit 7-3. Investment is equal to
a.
$850.
b.
$1,250.
c.
$200.
d.
$2,200.
e.
$1,050.
1
Moderate
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104. Refer to Exhibit 7-3. Net exports is equal to
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