Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions

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1 Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9 Multiple Choice Questions 1. Net domestic product is usually preferred to GDP by economists because net national product A. includes depreciation. B. excludes depreciation. C. includes indirect business taxes. D. excludes indirect business taxes. 2. If GDP rose from $4 trillion to $6 trillion, and prices rose by 50 percent, over this period A. real GDP fell by 100 percent. B. real GDP fell by 50 percent. C. real GDP stayed the same. D. real GDP rose by 50 percent. E. real GDP rose by 100 percent. 3. Which is not counted in GDP? A. A Social Security check sent to a retiree B. Government spending on highway building C. Money spent on an airline ticket D. Money spent by a company to build a new office park 4. The smallest component of national income is A. rent. B. interest. C. profits. D. salaries and wages. 5. Which one of the following is counted in GDP? A. Government spending B. Transfer payments C. Intermediate goods D. Leisure time 6. Which statement is true? A. GDP can never be greater than NDP. B. NDP can never be greater than GDP. C. GDP and NDP are always equal. D. None of the statements are true.

2 7. Which statement is true? A. In recent years net exports have been negative. B. Government spending is the largest sector of GDP. C. Business investment is the largest sector of GDP. D. None of the statements are true. 8. If GDP declined by 6 percent in real terms during one year, and population declined by 3 percent, then A. real GDP per capita decreased. B. real GDP per capita increased. C. real GDP increased while nominal GDP decreased. D. nominal GDP did not change at all. E. prices went down by 3 percent. 9. If our population doubles, our GDP doubles, and the GDP deflator doubles, our per capita real GDP will A. quadruple. B. double. C. stay exactly the same. D. decline by 25 percent. E. decline by 50 percent. 10. Gross Domestic Product is the total market value of all A. commodities sold in a year. B. goods and services produced in a year within a country. C. foods and services produced by domestic companies in a year. D. consumer goods sold in a year. 11. National income measures A. nominal GDP after it has been inflated or deflated for changes in the value of the dollar. B. the inflation adjusted income of resource supplies. C. the market value or cost of the resources used in the production of the national output. D. tax receipts of the federal government. 12. For purposes of calculating GDP using the expenditure approach, which of the following is NOT included in the government expenditures account? A. The government's purchase of pencils B. The payroll of the federal government C. The welfare payments made to the poor D. The government's purchase of a computer E. None of the choices are correct 13. Intermediate products are A. goods that are purchased by the government. B. goods that are transferred to the states. C. products produced by the federal government but consumed by the states. D. products produced by business firms for resale to other firms for further processing before sold to the final consumer of the product.

3 14. GDP is A. the market value of an economy's production of final goods and services. B. the sum of coins, bills, and demand deposits in an economy. C. the total expenditures of the federal government over the period of 1 year. D. the market value of an economy's production of intermediate goods and services. E. the total amount the government owes to bondholders. 15. The change in the United States from a rural, self-sufficient economy to an urban, marketoriented economy had the effect of A. causing the growth in GDP to understate the growth in economic well-being. B. inhibiting the growth of GDP. C. causing the growth in GDP to overstate the growth in economic well-being. D. increasing GDP primarily through the resulting increase in the general price level. 16. Wages are used to calculate A. GDP by the income approach. B. GDP by the expenditures approach. C. Net exports. D. Net subsidies to government enterprises. E. None of the choices are correct. 17. National income accountants can avoid multiple accounting by A. including transfers in their calculations. B. counting both intermediate and final goods. C. only counting final goods. D. only counting intermediate goods. 18. The value added for a nation equals A. all goods and services less the intermediate goods used in production. B. the market value of all products and services less the market value of all intermediate goods. C. input costs plus the value of intermediate goods. D. the market value of intermediate goods less the value of all goods and services. 19. Suppose that our GDP rose from $20 trillion in the year 2012 to $37 trillion in the year A. Real GDP definitely increased. B. Real GDP definitely decreased. C. The GDP deflator definitely doubled. D. The GDP deflator definitely increased. E. The GDP deflator definitely decreased. 20. The concept of "net domestic investment" refers to A. the amount of machinery and equipment used up in producing the GDP in a given 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 accomplishing the year's production. E. The total output of capital equipment, construction, and additions to inventories which occur in a given year.

4 21. National income includes all of the following except A. wages and salaries. B. corporate profits before taxes. C. rental income. D. depreciation. 22. In evaluating an economy's performance over a period of years, real GDP provides a better measuring rod than GDP because A. GDP is distorted by its failure to show qualitative improvements in the products we manufacture. B. Real GDP is adjusted for the social and environmental costs of production, which are normally not compensated. C. Real GDP includes such productive endeavors as housewife services and home repairs that are performed by households without payment. D. Real GDP does not include the value of intermediate goods and services. E. GDP reflects changes in prices as well as changes in output, while real GDP only reflects changes in output. 23. We use the value added approach in calculating GDP to A. avoid double counting. B. account for market price differences. C. account for changes in population. D. account for consumer income differences. 24. In 2009, the largest share of the United States economy's allocation of national product to land, labor, capital, and management was primarily received by the suppliers of A. Management. B. Land. C. Labor. D. Capital. 25. GDP can increase at a faster rate than real GDP A. only if there is a decline in the price level. B. only if the unemployment rate is increasing. C. only if the value of the dollar is stable. D. only if the population is growing. E. only if there is inflation. 26. The effect of Hurricane Katrina from a national income accounting standpoint probably caused real GDP to A. decrease. B. increase. C. stay the same. 27. The total market value of a nation's aggregate production of final output based on current prices for the goods and services produced during a given year is called A. net national product. B. national income. C. GDP. D. real GDP.

5 28. The nation of Upper Volta has a population of 100 million and a GDP of $4 trillion; the nation of Lower Volta has a population of 20 million and a GDP of $600 billion. A. Upper Volta has a higher per capita GDP than Lower Volta. B. Lower Volta has a higher per capita GDP than Upper Volta. C. The per capita GDPs of the two nations are equal. D. There is not enough information to determine the relative per capita GDPs of the two nations. 29. In comparing GDP data over a period of years a difference between GDP and real GDP may arise because A. Of changes in our trade deficits and surpluses. B. The length of the workweek has declined historically. C. The price level may change over time. D. Depreciation may be greater or smaller than gross investment. 30. Which of the following is part of gross domestic product? A. Value of homemakers' services in the home. B. Purchase of a second-hand car from a neighbor. C. Purchase of new stock from a recognized broker. D. Purchase of a new textbook in the local bookstore. E. Purchase of a corporate bond. 31. GDP can be estimated by summing A. personal consumption expenditures, net private domestic investment, and federal government spending. B. personal consumption expenditures, gross private domestic investment, government spending on goods and services, and net exports. C. all services and goods purchased by households, businesses, and government. D. household spending, investment, financial transactions, and government transfers. 32. The underground economy A. consists mainly of such involuntary transfer payments as savings and loan fraud and bank robberies. B. consists only of illegal activities such as prostitution, loan-sharking, and narcotics. C. is a very stable percentage of GDP. D. causes GDP to be underestimated by 10 to 15 percent. E. is a much larger percentage in the United States than in most other countries. 33. If there is a recession, which of the following will decline? A. GDP B. Government purchases C. Real GDP D. Nominal income 34. Suppose a farmer sells a bushel of wheat to a miller for $1; the miller makes it into flour and sells it to a baker for $2; the baker turns it into bread and sells it to a customer for $3. Calculating GDP the contribution of transactions would be A. $1.00. B. $2.00. C. $3.00. D. $6.00.

6 35. If families began doing each other's laundry for pay, GDP would A. rise. B. fall. C. remain unchanged because services are not included in GDP. D. remain unchanged because laundry is not a final good. 36. The value actually earned by members of households who supply the inputs necessary to produce GDP is called A. net investment. B. national income. C. personal income. D. disposable income. E. net national product. 37. Suppose that GDP is equal to $8 trillion. If net exports are -$1 trillion, consumption is $5 trillion, and investment is $2 trillion it follows that A. government purchases are zero. B. government purchases are $1 trillion. C. government purchases are $2 trillion. D. government purchases are $3 trillion. 38. If a large number of families moved from cities to rural areas and produced the major portion of the food what would be the effect on the GDP? A. GDP would decline B. GDP would increase C. GDP would be unaffected D. GDP would equal NDP 39. Gross investment refers to A. net investment plus net exports. B. net investment after it has been "inflated" for changes in the price level. C. net investment plus depreciation. D. private investment plus public investment. 40. Which one of the following is a final good or service? A. Microcomputer chips for a new computer B. A radio bought by General Motors for use in its new line of cars C. Chemical pesticides used by a farmer to control the incidence of crop disease D. A will drawn up by your personal attorney E. The lead added to gasoline to increase the octane rating 41. Statement I: The higher the GDP deflator, the greater the degree of deflation. Statement II: Real GDP was higher in 1992 than in A. Statement I is true and statement II is false. B. Both statements are true. C. Statement II is true and statement I is false. D. Both statements are false.

7 42. The term "final goods and services" refers to A. goods and services which are unsold and therefore added to inventories. B. goods and services whose value has been adjusted for changes in the price level. C. good and services purchased by ultimate users, as opposed to resale or further processing. D. the excess of American exports over American imports. E. consumer goods, as opposed to investment goods. 43. GDP is $7 trillion. If consumption is $4.2 trillion, investment is $1.4 trillion, and government purchases are $2.1 trillion, then A. exports are equal to imports. B. exports exceed imports by $0.7 trillion. C. imports exceed exports by $0.7 trillion. D. exports are equal to $0.7 trillion. 44. The increase in the proportion of women in the labor force causes GDP to the growth in economic well-being because. A. overstate; some of the services that women formerly provided in the home are now purchased in the market B. overstate; the services that women provide in the home do not contribute to economic wellbeing C. understate; some of the services that women formerly provided in the home are now purchased in the market D. understate; the services that women provide in the home do not contribute to economic well-being 45. The sale of a used 1999 automobile in 2009 would not be included in 2009 GDP because it A. is a nonmarket transaction. B. would involve double counting. C. has already been accounted for. D. is a noninvestment transaction. 46. Transfer payments are A. flows of income received by foreigners. B. flows of income received by exporters. C. included in GDP. D. excluded from GDP. E. stocks of unplanned inventory produced in prior years. 47. Military goods purchased by the government are A. not included in GDP. B. measured in GDP by their cost of production. C. measured in GDP by how much their goods add to the economic well-being. D. measured in GDP only if the government sells these goods to another country. 48. Payments for goods and services that will be used up by households during the year are A. investment expenditures for the production of output. B. made by firms to households and called national income. C. called consumption expenditures. D. for intermediate goods and are not counted in GDP.

8 49. Statement I: When there is inflation, real GDP will be greater than GDP. Statement II: The greater depreciation is, the greater the difference between GDP and NDP. A. Statement I is true and statement II is false. B. Statement II is true and statement I is false. C. Both statements are true. D. Both statements are false. 50. Which of the following is an example of an intermediate product? A. A pair of skis sold by a sporting goods retailer B. A share of IBM stock C. The lumber produced by Boise Cascade and sold to a builder of new houses D. An antique car sold to the highest bidder E. None of the choices are true Short Answer Questions 1. Find national income. 2. Find net domestic product. 3. Find gross domestic product. 4. Find national income. 5. Find net domestic product. 6. Find gross domestic product. 7. If the GDP deflator rises from 150 to 175, by what percentage did prices rise?

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