ECON 202 Chapter 10 – Flashcards

1. Macroeconomists study a. the decisions of individual households and firms. b. the interaction between households and firms. c. economy-wide phenomena. d. regulations imposed on firms and unions.

2. Which of the following statistics 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

3. GDP a. is used to monitor the performance of the overall economy but is not the single best measure of a society's economic well-being. b. is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being. c. is not used to monitor the performance of the overall economy but is the single best measure of a society's economic well-being. d. is not used to monitor the performance of the overall economy and is not the single best measure of a society's economic well-being.

4. Gross domestic product measures a. income and expenditures. b. income but not expenditures. c. expenditures but not income. d. neither income nor expenditures.

5. For an economy as a whole, a. the market value of production must equal expenditure. b. investment must equal the value of stocks and bonds purchased. c. wages must equal income. d. consumption must equal saving.

6. Because every transaction has a buyer and a seller, a. GDP is more closely associated with an economy's income than it is with an economy's expenditure. b. every transaction contributes equally to an economy's income and to its expenditure. c. the number of firms must be equal to the number of households in a simple circular-flow diagram. d. firms' profits are necessarily zero in a simple circular-flow diagram.

7. If an economy's GDP falls, then it must be the case that the economy's a. income falls and saving rises. b. income and saving both fall. c. income falls and expenditure rises. d. income and expenditure both fall.

8. 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.

9. In the actual economy, households a. spend all of their income. b. divide their income among spending, taxes, and saving. c. buy all goods and services produced in the economy. d. Both (a) and (c) are correct.

10. GDP is defined as the a. value of all goods and services produced within a country in a given period of time. b. value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. c. value of all final goods and services produced within a country in a given period of time. d. value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

11. Which of the following is a way to compute GDP? a. total income earned. b. total expenditures on final goods. c. add up the market values of all final goods and services. d. All of the above are correct.

12. In computing GDP, market prices are used to value final goods and services because a. market prices do not change much over time, so it is easy to make comparisons between years. b. market prices reflect the values of goods and services. c. market prices reflect the quantity sold. d. None of the above is correct; market prices are not used in computing GDP.

13. Suppose that an economy produces 20,000 units of good A which sells at $3 a unit and 40,000 units of good B which sells at $1 per unit. Production of good A contributes a. 1/3 times as much to GDP as the production of good B. b. 3/2 times as much to GDP as the production of good B. c. 3 times as much to GDP as the production of good B. d. 2/3 times as much to GDP as production of good B.

14. Which of the following is included in GDP? a. the market value of rental housing services, but not the market value of owner-occupied housing services. b. the market value of owner-occupied housing services, but not the market value of rental housing services c. both the market value of rental housing services and the market value of owner-occupied housing services d. neither the market value of owner-occupied housing services nor the market value of rental housing services.

15. Which of the following is included in the calculation of GDP? a. The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country. b. The purchase of a new edition of a foreign textbook that was produced in a different nation. c. The purchase of ink and paper supplies by a textbook company for the production of new textbooks. d. The purchase of a used textbook from a friend who took the same class last year.

16. Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion? a. GDP necessarily increases. b. GDP necessarily decreases. c. GDP is unaffected because neither the rent nor the estimate of the value owner-occupied housing services is included in GDP. d. GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services.

17. GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because a. the quality of these items is not high enough to contribute value to GDP. b. measuring them is so difficult. c. the government wants to discourage the production and consumption of these items. d. these items are not reported on income tax forms.

18. 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 by the value of the restaurant meals. d. increased measured GDP by the value added by the restaurant's preparation and serving of the meals.

19. Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is a. included in GDP whether Susan pays Speedy Lube to change it or changes it herself. b. included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself. c. included in GDP if Susan changes it herself, but not if she pays Speedy Lube to change it. d. not included in GDP whether Susan pays Speedy lube to change it or she changes it herself.

20. A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move a. raises GDP. b. decreases GDP. c. doesn't change GDP because gambling is never included in GDP. d. doesn't change GDP because in either case his income is included.

21. A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called a. inventory goods. b. transitory goods. c. final goods. d. intermediate goods.

22. A farmer sells $25,000 worth of apples to individuals who take them home to eat, $50,000 worth of apples to a company that uses them all to produce cider, and $75,000 worth of apples to a grocery store that will sell them to households. How much of the farmer's sales will be included as apples in GDP? a. $25,000 b. $150,000 c. $100,000 d. $125,000

23. A U.S.-owned automobile factory uses $100,000 worth of parts purchased from foreign countries along with U.S. inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and 10 are left in inventory. How much did these actions add to GDP? a. $300,000 b. $500,000 c. $600,000 d. $700,000

24. A tire manufacturer produces 400 tires valued at $20 each. Three hundred tires are sold to a tire shop, which then sells them to households for $50 each. The remaining tires are unsold and are added to the tire manufacturer's inventory. How much is added to GDP? a. $8,000 b. $15,000 c. $17,000 d. $13,000

25. Gasoline is considered a final good if it is sold by a a. gasoline station to a bus company that operates a bus route between San Francisco and Los Angeles. b. pipeline operator to a gasoline station in San Francisco. c. gasoline station to a motorist in Los Angeles. d. All of the above are correct.

26. 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 it is difficult to determine their value. d. not included in current GDP because GDP only measures the value of goods and services produced in the current year.

27. Sheri, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included a. in both German GDP and U.S. GDP. b. in German GDP, but is not included in U.S. GDP. c. in U.S. GDP, but is not included in German GDP. d. in neither German GDP nor U.S. GDP.

28. Which of the following items is included in U.S. GDP? a. final goods and services that are purchased by the U.S. federal government b. intermediate goods that are produced in the U.S. but that are unsold at the end of the GDP accounting period c. goods and services produced by foreign citizens working in the U.S. d. All of the above are included in U.S. GDP.

29. The statistical discrepancy that regularly arises in national income accounting refers to the slight difference between a. personal income and personal disposable income. b. estimates of GDP and actual GDP. c. the income and expenditure approaches to the calculation of GDP. d. the quarterly and annual approaches to the calculation of GDP.

30. 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.

31. If foreign citizens earn less income in the U.S. than U.S. citizens earn in foreign countries, a. U.S. net factor payments from abroad are positive, and its GDP is larger than its GNP. b. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP. c. U.S. net factor payments from abroad are negative, and its GDP is larger than its GNP. d. U.S. net factor payments from abroad are negative, and its GNP is larger than its GDP.

32. Gina, a U.S. citizen, works only in Bermuda. The value of Gina's production is included in a. U.S. GDP and Bermudan GDP. b. U.S. GDP and Bermudan GNP. c. U.S. GNP and Bermudan GDP. d. U.S. GNP and Bermudan GNP.

33. How is net national product (NNP) calculated? a. Saving is subtracted from the total income of a nation's citizens. b. Saving is added to the total income of a nation's citizens c. Depreciation losses are subtracted from the total income of a nation's citizens. d. Depreciation losses are added to the total income of a nation's citizens.

34. In the national income accounts, depreciation is called a. "consumption of fixed capital." b. "negative investment." c. "diminished value." d. "loss due to wear."

35. National income is defined as a. the total income of a nation's permanent residents minus losses from depreciation. b. the income that households and noncorporate businesses receive. c. the total income earned by a nation's permanent residents in the production of goods and services. d. the income that households and noncorporate businesses have left after satisfying all their obligations to the government.

36. The income that households and noncorporate businesses receive is called a. personal income. b. net national product. c. disposable personal income. d. national income.

37. Retained earnings is income that a. households retain after paying taxes. b. businesses retain after paying taxes. c. corporations have earned but have not used to invest in plant, equipment, and inventories. d. corporations have earned but have not paid out to their owners.

38. Disposable income is a. the total income earned by a nation's permanent residents. b. the total income earned by a nation's residents in the production of goods and services. c. the income that households and non-corporate businesses receive. d. the income that households and businesses have remaining after satisfying their obligations to the government.

39. In the equation Y = C + I + G + NX, a. Y represents the economy's total expenditure. b. C represents household expenditures on services and durable goods. c. all of the variables are always positive numbers. d. All of the above are correct.

40. The consumption component of GDP includes spending on a. durable goods and nondurable goods, but not spending on services. b. durable goods and services, but not spending on nondurable goods. c. nondurable goods and services, but not spending on durable goods. d. durable goods, nondurable goods, and services.

41. If you buy a burger and fries at your favorite fast food restaurant, a. then neither GDP nor consumption will be affected because you would have eaten at home had you not bought the meal at the restaurant. b. then GDP will be higher, but consumption spending will be unchanged. c. then GDP will be unchanged, but consumption spending will be higher. d. then both GDP and consumption spending will be higher.

42. Which of the following is included in the investment component of GDP? a. spending to build new houses b. spending to build new factories c. spending on business equipment such as welding equipment d. All of the above are included in the investment component of GDP.

43. During the current quarter, a firm produces consumer goods and adds some of those goods to its inventory rather than selling them. The value of the goods added to inventory is a. not included in the current quarter GDP. b. included in the current quarter GDP as investment. c. included in the current quarter GDP as consumption. d. included in the current quarter GDP as a statistical discrepancy.

44. Which of the following is included in government purchases? a. unemployment benefits a state pays b. Social Security payments the U.S. government makes c. the services of a U.S. government attorney valued at the cost of her salary d. All of the above are correct.

45. Transfer payments a. are payments that flow from government to households. b. are not made in exchange for currently produced goods or services. c. alter household income, but they do not reflect the economy's production. d. All of the above are correct.

46. Which of the following represents a transfer payment? a. You transfer $1,000 from your bank account to a mutual fund. b. The government sends your grandfather his Social Security check. c. You make a payment to get legal documents showing you purchased a previously owned home. d. Your employer automatically transfers $100 each month from your wages to a non-taxable medical spending account.

47. Unemployment compensation is a. part of GDP because it represents income. b. part of GDP because the recipients must have worked in the past to qualify. c. not part of GDP because it is a transfer payment. d. not part of GDP because the payments reduce business profits.

48. Net exports equal a. exports plus imports. b. exports minus imports. c. imports minus exports. d. GDP minus imports.

49. If net exports is a negative number for a particular year, then a. the value of firms' inventories declined over the course of the year. b. consumption exceeded the sum of investment and government purchases during the year. c. the value of goods sold to foreigners exceeded the value of foreign goods purchased during the year. d. the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year.

50. A U.S. grocery chain purchases olive oil from Tunisia and sells it to U.S. consumers. In which of the following is this transaction included? a. U.S. consumption and U.S. imports b. U.S. consumption but not U.S. imports c. U.S. imports but not U.S. consumption d. neither U.S. consumption nor U.S. imports

51. A German citizen buys an automobile produced in the United States by a Japanese company. As a result, a. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. b. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, German GNP is unaffected, and German GDP decreases. c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. d. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports, GNP, and GDP decrease.

52. An American retailer purchased 100 pairs of shoes from a company in Mexico in the second quarter of 2016 but does not sell them to a consumer until the third quarter of 2016. In which quarter(s) does(do) the value of the shoes add to U.S. GDP? a. the second and third quarters b. the second quarter but not the third quarter c. the third but not the second quarter d. neither the second nor the third quarter

53. The city of Ann Arbor Michigan buys a police car manufactured in Germany. In the GDP accounts this transaction is included in a. in government expenditures and exports. b. government expenditures and imports. c. exports, but not government expenditures. d. imports, but not government expenditures.

54. Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $3,000. GDP equals a. $24,450. b. $11,550. c. $15,300. d. $20,700.

55. 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.

56. If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise? a. both real GDP and nominal GDP. b. real GDP but not nominal GDP. c. nominal GDP but not real GDP. d. neither nominal GDP nor real GDP.

57. Changes in nominal GDP reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.

58. Real GDP will increase a. only when prices increase. b. only when output increases. c. when prices increase or output increases. d. All of the above are correct.

59. Real GDP is the yearly production of final goods and services valued at a. current prices. b. constant prices. c. expected future prices. d. the ratio of current prices to constant prices.

60. Which of the following is correct? a. Nominal GDP is always less than real GDP. b. Nominal GDP is always greater than real GDP. c. Nominal GDP equals real GDP in the base year. d. Nominal GDP equals real GDP in all years but the base year.

61. Changes in the GDP deflator reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.

62. Which of the following is the correct formula for the GDP deflator? a. . b. . c. . d. .

63. The term economists use to describe a situation in which the economy's overall price level is rising is a. growth. b. inflation. c. recession. d. expansion.

64. The inflation rate is the a. absolute change in real GDP from one period to another. b. percentage change in real GDP from one period to another. c. absolute change in the price level from one period to another. d. percentage change in the price level from one period to another.

65. A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate? a. 16.7%. b. 10.0%. c. 15.0%. d. -9.1%.

66. If nominal GDP doubles and the GDP deflator doubles, then real GDP a. remains constant. b. doubles. c. triples. d. quadruples.

67. A stove is produced by a firm in 2014, added to the firm's inventory in 2014, and sold to a household in 2015. It follows that a. the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP. b. the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and not included in the investment category of 2015 GDP. c. the value of the good is added to the investment category of 2014 GDP, subtracted from the consumption category of 2015 GDP, and not included in the investment category of 2015 GDP. d. the value of the good is added to the investment category of 2014 GDP, subtracted from the consumption category of 2015 GDP, and added to the investment category of 2015 GDP.

68. To encourage formation of small businesses, the government could provide subsidies; these subsidies a. would be included in GDP because they are part of government purchases. b. would be included in GDP because they are part of investment expenditures. c. would not be included in GDP because they are transfer payments. d. would not be included in GDP because the government raises taxes to pay for them.

69. In the economy of Talikastan in 2015, consumption was $700, exports were $200, government purchases were $300, imports were $150, and investment was $400. What was Talikastan's GDP in 2015? a. $1350 b. $1450 c. $1050 d. $1750

70. In the economy of Talikastan in 2015, exports were $200, GDP was $2000, government purchases were $200, imports were $270, and investment was $500. What was Talikastan's consumption in 2015? a. $830 b. $1230 c. $1370 d. $1770

71. In the economy of Talikastan in 2015, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $1800, and imports were $1200. What was Talikastan's investment in 2015? a. $0 b. $1200 c. $2400 d. $5600

72. Which of the following is always measured in prices from a base-year? a. both nominal and real GDP. b. nominal but not real GDP. c. real but not nominal GDP. d. neither nominal nor real GDP.

73. In the base year, the GDP deflator is always a. -1. b. 0. c. 1. d. 100.

74. If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is a. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base year. b. 83.33, and this indicates that the price level has increased by 83.33 percent since the base year. c. 120, and this indicates that the price level has increased by 20 percent since the base year. d. 120, and this indicates that the price level has increased by 120 percent since the base year.

75. If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is a. 80, and this indicates that the price level has decreased by 20 percent since the base year. b. 80, and this indicates that the price level has increased by 80 percent since the base year. c. 125, and this indicates that the price level has increased by 25 percent since the base year. d. 125, and this indicates that the price level has increased by 125 percent since the base year.

76. Suppose an economy produces only cranberries and maple syrup. In 2010, 50 units of cranberries are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit. In 2009, the base year, the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit. For 2010, 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.

77. Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010, a. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83. b. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 130.16. c. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 130.16. d. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 76.83.

85. A recession has traditionally been defined as a period during which a. nominal GDP declines for two consecutive quarters. b. nominal GDP declines for four consecutive quarters. c. real GDP declines for two consecutive quarters. d. real GDP declines for four consecutive quarters.

86. Recessions are not associated with which of the following? a. increased bankruptcies b. falling profits c. falling incomes d. falling unemployment

87. A recession is always associated with a. the end of a war. b. slowly growing real GDP. c. rising inflation. d. declining real GDP.

88. GDP per person tells us the income and expenditure of the a. richest person in the economy. b. poorest person in the economy. c. average person in the economy. d. entire economy.

89. GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is a. saving per person. b. GDP per person. c. government expenditures per person. d. investment per business firm.

90. GDP does not reflect a. the value of leisure. b. the value of goods and services produced at home. c. the quality of the environment. d. All of the above are correct.

91. Which of the following statements regarding GDP is correct? a. GDP includes factory production, but not any harm that may be inflicted on the environment. b. GDP accounts for all activities taking place outside markets. c. GDP provides detailed information about the distribution of income. d. GDP is a good measure of economic well-being for all purposes.

92. The underground economy a. excludes the amount of criminal activity in an economy. b. is larger for developed nations than developing nations when measured as a percent of GDP. c. includes otherwise legal transactions that go unreported or unrecorded. d. in the United States is insignificant is size when compared to the official measure of GDP.

93. Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 200, and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and population of 150. What happened to the real GDP per person? a. It more than doubled. b. It increased, but it less than doubled. c. It was unchanged. d. It decreased.

94. Last year country A had a nominal GDP of $600 billion, a GDP deflator of 150 and a population of 40 million. Country B had a nominal GDP of $720 billion, a GDP deflator of 120 and a population of 50 million. From these numbers which country is likely to have had the higher standard of living? a. Country A because it had the higher nominal GDP per person. b. Country B because it had the higher nominal GDP per person. c. Country A because it had the higher real GDP per person. d. Country B because it had the higher real GDP per person.

95. Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that a. GDP is not a useful measure of society's welfare. b. GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government. c. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare. d. GDP is still the best measure of society's welfare because these other values cannot actually be measured.

96. Which of the following statements about recessions is true? a. An old rule of thumb defining recession is two consecutive quarters of falling nominal GDP. b. Recessions occur at regular intervals and last standard amounts of time. c. There is no ironclad rule for the declaration of recessions. d. Recessions are associated with low unemployment and high income.

97. Household spending on education is included in a. consumption, although it might be argued that it would fit better in investment. b. investment, although it might be argued that it would fit better in consumption. c. government spending, based on the fact that most higher-education students attend publicly-supported colleges and universities. d. None of the above is correct; in general, household spending on services is not included in any component of GDP.