Pre-Test Chapter 6 ed17 2

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1 Pre-Test Chapter 6 ed17 2 Multiple Choice Questions 1. (Last Word) The U.S. government agency responsible for compiling the national income accounts is the: A. Census Bureau. B. Bureau of Labor Statistics (BLS). C. Commerce Department's Bureau of Economic Analysis (BEA). D. Government Accounting Office (GAO). Answer the next question(s) on the basis of the following data. All figures are in billions of dollars. 2. Refer to the above data. Gross domestic product is: A. $395. B. $380. C. $375. D. $ If real GDP rises and the GDP price index has increased: A. the percentage increase in nominal GDP must have been less than the percentage increase in the price level. B. nominal GDP may have either increased or decreased. C. nominal GDP must have increased. D. nominal GDP must have fallen. Prof Keep Econ Chap 6 ed 17 Prof-Test Chap 6 Page 1 of 8

2 Assume an economy that is producing only one product. Output and price data for a three-year period are as follows. Answer the next question(s) on the basis of these data. 4. Refer to the above data. If year 2 is chosen as the base year, in years 1 and 3 the price index values, respectively, are: A. 4 and 6. B. 6 and 4. C. 120 and 100. D. 100 and When an economy's production capacity is expanding: A. nominal GDP, but not necessarily real GDP, is rising. B. net exports is always a positive amount. C. DI exceeds PI. D. domestic investment exceeds depreciation. 6. The fact that nominal GDP has risen faster than real GDP: A. suggests that the base year of the GDP price index has been shifted. B. tells us nothing about what has happened to the price level. C. suggests that the general price level has fallen. D. suggests that the general price level has risen. 7. The concept of net domestic investment refers to: A. the amount of machinery and equipment used up in producing the GDP in a specific year. B. the difference between the market value and book value of outstanding capital stock. C. gross domestic investment less net exports. D. total investment less the amount of investment goods used up in producing the year's output. 8. Which of the following is a final good or service? A. a haircut B. fertilizer purchased by a farm supplier C. diesel fuel bought for a delivery truck D. Chevrolet windows purchased by a General Motors assembly plant 9. Real GDP refers to: A. the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. B. GDP data that embody changes in the price level, but not changes in physical output. C. GDP data that reflect changes in both physical output and the price level. D. GDP data that have been adjusted for changes in the price level. Prof Keep Econ Chap 6 ed 17 Prof-Test Chap 6 Page 2 of 8

3 10. Transfer payments are included in: A. NI. B. PI. C. GDP. D. NDP. Answer the next question(s) on the basis of the following information: Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per unit prices of these three goods are A = $2, B = $3, and C = $ (Advanced analysis) Refer to the above information. If the per unit prices of the three goods each were $1 in a base year used to construct a GDP price index, then real GDP in the current year is: A. $110. B. $115. C. $45. D. $ GDP includes: A. neither intermediate nor final goods. B. both intermediate and final goods. C. intermediate, but not final, goods. D. final, but not intermediate, goods. 13. Value added can be determined by: A. summing the profits of all enterprises in the economy. B. subtracting the purchase of intermediate products from the value of the sales of final products. C. calculating the year-to-year changes in real GDP. D. deflating nominal GDP. Answer the next question(s) on the basis of the following information: 14. The economy above has experienced a: A. a declining nominal GDP. B. a rising price level. C. a declining real GDP. D. deflation. Prof Keep Econ Chap 6 ed 17 Prof-Test Chap 6 Page 3 of 8

4 Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation 15. Other things equal, the above information suggests that the production capacity in economy: A. B is growing more rapidly than either A or C. B. A is growing more rapidly than either B or C. C. A is growing less rapidly than economy B. D. C is growing more rapidly than economy B. Answer the next question(s) on the basis of the following data. All figures are in billions of dollars. 16. Refer to the above data. NDP is: A. $370. B. $402. C. $392. D. $ The GDP price index: A. includes fewer goods and services than the consumer price index. B. is identical to the consumer price index. C. is another term for the producer price index. D. includes all goods comprising the nation's domestic output. Prof Keep Econ Chap 6 ed 17 Prof-Test Chap 6 Page 4 of 8

5 Assume an economy that is producing only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the next question(s) on the basis of these data. 18. Refer to the above data. For the years shown the growth of: A. real GDP has exceeded the growth of nominal GDP. B. nominal GDP accurately reflects changes in real output. C. nominal GDP overstates increases in real output. D. nominal GDP understates increases in real output. 19. Historically, real GDP has increased less rapidly than nominal GDP because: A. price indices have not reflected improvements in product quality. B. the general price level has increased. C. technological progress has resulted in more efficient production. D. the general price level has declined. 20. Refer to the above information. Positive net investment is occurring in: A. economy A only. B. economy B only. C. economy C only. D. economies A and B only. 21. Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being? A. the services of used-car dealers B. the child-care services provided by stay-at-home parents C. the construction of new houses D. government expenditures on military equipment 22. GDP is: A. the monetary value of all goods and services (final, intermediate, and non-market) produced in a given year. B. total resource income less taxes, saving, and spending on exports. C. the economic value of all economic resources used in the production of a year's output. D. the market value of all final goods and services produced within a nation in a specific year. Prof Keep Econ Chap 6 ed 17 Prof-Test Chap 6 Page 5 of 8

6 Answer the next question(s) on the basis of the following data. All figures are in billions of dollars. 23. The economy characterized by the above data is: A. experiencing inflation because disposable income exceeds personal income. B. experiencing declining production capacity because net investment is negative. C. in a depression because personal income exceeds disposable income. D. experiencing expanding production capacity because net private domestic investment is positive. Answer the next question(s) on the basis of the following national income data for the economy. All figures are in billions. 24. The gross domestic product for the above economy is: A. $584. B. $592. C. $609. D. $623. Prof Keep Econ Chap 6 ed 17 Prof-Test Chap 6 Page 6 of 8

7 25. Refer to the above data. Real GDP in year 3 is: A. $100. B. $450. C. $225. D. $ Refer to the above data. Net domestic product is: A. $395. B. $380. C. $375. D. $360. Answer the next question(s) on the basis of the following national income data. All figures are in billions of dollars. 27. Refer to the above data. Personal consumption expenditures: A. cannot be calculated. B. are $231. C. are $225. D. are $205. Prof Keep Econ Chap 6 ed 17 Prof-Test Chap 6 Page 7 of 8

8 28. Suppose a nation's 2003 nominal GDP was $972 billion and the general price index was 90. To make the 2003 GDP comparable with the base year GDP, the 2003 GDP must be: A. adjusted downward to $678 billion. B. deflated to $896 billion. C. inflated to $1080 billion. D. deflated to $1080 billion. 29. Refer to the above data. The net domestic product is: A. $233. B. $255. C. $230. D. $ If net foreign factor income is zero and there are no statistical discrepancies, the sum of national income and the consumption of fixed capital equals: A. disposable income. B. personal income. C. net domestic product. D. gross domestic product. Pre-Test Chapter 6 ed17 2 Key 1. C 2. A 3. C 4. D 5. D 6. D 7. D 8. A 9. D 10. B 11. C 12. D 13. B 14. D 15. D 16. C 17. D 18. C 19. B 20. C 21. B 22. D 23. B 24. D 25. D 26. B 27. A 28. C 29. B 30. D Prof Keep Econ Chap 6 ed 17 Prof-Test Chap 6 Page 8 of 8

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