Multiple choice ch 2

Chapter 23: Measuring a Nation’s Income
Sec00: Measuring a Nation’s Income
1.
Statistics that are of particular interest to macroeconomists
a. are largely ignored by the media.
b. are widely reported by the media.
c. include the equilibrium prices of individual goods and services.
d. tell us about a particular household, firm, or market.
2. Which of the following is not a question that macroeconomists address?
a. Why is average income high in some countries while it is low in others?
b. Why does the price of oil rise when war erupts in the Middle East?
c. Why do production and employment expand in some years and contract in others?
d. Why do prices rise rapidly in some periods of time while they are more stable in other periods?
9.

Which of the following statistic is usually regarded as the best single measure of a society’s economic well-being?
a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit
Sec01- Measuring a Nation’s Income – The Economy’s Income and Expenditure
2. Gross domestic product measures two things at once:
a. the total spending of everyone in the economy and the total saving of everyone in the economy.
b. the total income of everyone in the economy and the total expenditure on the economy's output of
goods and services.
c. the value of the economy's output of goods and services for domestic citizens and the value of the
economy's output of goods and services for the rest of the world.
d. the total income of households in the economy and the total profit of firms in the economy.
3.
For an economy as a whole,
a. wages must equal profit.

b. consumption must equal saving.
c. income must equal expenditure.
d. the number of buyers must equal the number of sellers.
4.

5.

9.

For an economy as a whole, income must equal expenditure because
a. the number of firms is equal to the number of households in an economy.
b. international law requires that income equal expenditure.
c. every dollar of spending by some buyer is a dollar of income for some seller.
d. every dollar of saving by some consumer is a dollar of spending by some other consumer.
If an economy’s GDP rises, then it must be the case that the economy’s
a. income rises and saving falls.
b. income and saving both rise.
c. income rises and expenditure falls.
d. income and expenditure both rise.
In a simple circular-flow diagram, total income and total expenditure are
a. never equal because total income always exceeds total expenditure.
b. seldom equal because of the ongoing changes in an economy’s unemployment rate.
c. equal only when one dollar is spent on goods for every dollar that is spent on services.
d. always equal because every transaction has a buyer and a seller.

Sec02 – Measuring a Nation’s Income – The Measurement of Gross Domestic Product
2. Gross domestic product is defined as
a. the quantity of all final goods and services demanded within a country in a given period of time.
b. the quantity of all final goods and services supplied within a country in a given period of time.
c. the market value of all final goods and services produced within a country in a given period of time.

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d.

Both (a) and (b) are correct.

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8. If the price of a DVD player is three times the price of a CD player, then a DVD player contributes
a. more than three times as much to GDP as does a CD player.
b. less than three times as much to GDP as does a CD player.
c. exactly three times as much to GDP as does a CD player.
d. to GDP but a CD player does not contribute to GDP.

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18. If Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself, then GDP
a. necessarily rises.
b. necessarily falls.
c. will be unaffected because the same service is produced in either case.
d. will be unaffected because car maintenance is not included in GDP.

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28.

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a
bicycle, which it sells for $250. Taken together, these two transactions contribute
a. $150 to GDP.
b. $250 to GDP.
c. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it
sold the bicycle.
d. $400 to GDP.

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38.

Transactions involving items produced in the past, such as the sale of a 5-year-old automobile by a used car dealership
or the purchase of an antique rocking chair by a person at a yard sale, are
a. included in current GDP because GDP measures the value of all goods and services sold in the
current year.
b. included in current GDP but valued at their original prices.
c. not included in current GDP because GDP only measures the value of goods and services produced
in the current year.
d. not included in current GDP because these items have no current value.

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49.

Which of the following items is included in U.S. GDP?
a. the estimated value of production accomplished at home, such as backyard production of fruits and

vegetables
b. the value of illegally-produced goods and services
c. the value of cars and trucks produced in foreign countries and sold in the U.S.
d. None of the above is included in U.S. GDP.

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64.

U.S. GDP and U.S. GNP are related as follows:
a. GNP = GDP + Value of exported goods - Value of imported goods.
b. GNP = GDP - Value of exported goods + Value of imported goods.
c. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens abroad.
d. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

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73.

Which of the following is an example of depreciation?
a. falling stock prices
b. the retirement of several employees
c. computers becoming obsolete
d. All of the above are examples of depreciation.

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Sec 03- Measuring a Nation’s Income – The Components of GDP
2. GDP is equal to
a. the market value of all final goods and services produced within a country in a given period of time.
b. Y.
c. C + I + G + NX.
d. All of the above are correct.

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13.

For the purpose of calculating GDP, investment is spending on
a. stocks, bonds, and other financial assets.
b. real estate and financial assets such as stocks and bonds.
c. capital equipment, inventories, and structures, including household purchases of new housing.
d. capital equipment, inventories, and structures, excluding household purchases of new housing.

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22.

The value of goods added to a firm's inventory in a certain year is treated as
a. consumption, since the goods will be sold to consumers in another period.
b. saving, since the goods are being saved until they are sold in another period.
c. investment, since GDP aims to measure the value of the economy's production that year.
d. spending on durable goods, since the goods could not be inventoried unless they were durable.

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33. Which of the following items is counted as part of government purchases?
a. The federal government pays the salary of a Navy officer.
b. The state of Nevada pays a private firm to repair a Nevada state highway.
c. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.
d. All of the above are correct.

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43.

After the terrorist attacks on September 11, 2001, governments within the United States raised expenditures to increase
security at airports. These purchases of goods and services are
a. not included in GDP since they do not represent production.
b. not included in GDP since the government collects taxes to pay for them.
c. included in GDP since government expenditures on goods and services are included in GDP.
d. included in GDP only to the extent that the federal government, rather than state or local
governments, paid for them.

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53.

If a U.S. citizen buys a dress made in Nepal by a Nepalese firm, then
a. U.S. consumption increases, U.S. net exports decrease, and U.S. GDP decreases.
b. U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected.
c. U.S. consumption decreases, U.S. net exports increase, and U.S. GDP increases.

d. U.S. consumption decreases, U.S. net exports increase, and U.S. GDP is unaffected.

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63.

In the economy of Wrexington in 2008, consumption was $6000, exports were $1000, GDP was $10,000, government
purchases were $2000, and imports were $600. What was Wrexington’s investment in 2008?
a. $1400
b. $1600
c. $2400
d. $3600

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Sec04-Measuring a Nation’s Income – Real versus Nominal GDP
If total spending rises from one year to the next, then
a. the economy must be producing a larger output of goods and services.
b. goods and services must be selling at higher prices.
c. either the economy must be producing a larger output of goods and services, or goods and services
must be selling at higher prices, or both.
d. employment or productivity must be rising.

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11.

When economists talk about growth in the economy, they measure that growth as the
a. absolute change in nominal GDP from one period to another.
b. percentage change in nominal GDP from one period to another.
c. absolute change in real GDP from one period to another.
d. percentage change in real GDP from one period to another.

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21.

In the economy of Wrexington in 2008, real GDP was $5 trillion and the GDP deflator was 200. What was
Wrexington’s nominal GDP in 2008?
a. $2.5 trillion
b. $10 trillion
c. $40 trillion
d. $100 trillion

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31.

Suppose an economy produces only cranberries and maple syrup. In 2006, 50 units of cranberries are sold at $20 per
unit and 100 units of maple syrup are sold at $8 per unit. In 2005, the base year, the price of cranberries was $10 per
unit and the price of maple syrup was $15 per unit. For 2006,
a. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90.
b. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 111.1.
c. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 90.
d. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 111.1.

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