question

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

answer

Microeconomics

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The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

answer

Macroeconomics

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Alternating periods of economic expansion and economic recession.

answer

Business Cycle

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The period of a business cycle during which total production and total employment are increasing.

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Expansion

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The period of a business cycle during which total production and total employment are decreasing.

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Recession

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The ability of an economy to product increasing quantities of goods and services

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Economic growth

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The percentage increase in the price level from one year to the next.

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Inflation Rate

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The market value of all final goods and services produced in a country during a period of time, typically one year.

answer

Gross Domestic Product (GDP)

question

GDP includes only the market value of __________.

answer

FINAL GOODS

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A good or service purchased by a final user.

answer

Final good or service

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A good or service that is an input into another good or service, such as a tire on a truck.

answer

Intermediate good or service

question

GDP includes only __________ production.

answer

current (GDP includes only production that takes place during the indicated time period.)

question

GDP is measured using ____________, not __________.

answer

Market values, NOT quantities

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Payments by the government to individuals for which the government does not receive a new good or service in return

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Transfer payments

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Components of GDP:

answer

1. Consumption 2. Investment 3. Government purchases 4. Net exports

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Spending by households on goods and services, not including spending on new houses.

answer

Consumption

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Spending by firms on new factories, office buildings, machinery, and additions to inventories, and spending by households and firms on new houses.

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Investment

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Spending by federal, state, and local governments on goods and services.

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Government purchases

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Exports minus imports

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Net exports

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An Equation for GDP and Some Actual Values

answer

Y = C + I + G + NX

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The market value a firm adds to a product

answer

value added

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Shortcomings in GDP as a Measure of Total Production:

answer

1. Household Production -- Household production refers to goods and services people produce for themselves. 2. The Underground Economy -- Buying and selling of goods and services that is concealed form the government to avoid taxes or regulations or because the goods and services are illegal.

question

Refers to goods and services people produce for themselves.

answer

Household production

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Buying and selling of goods and services that is concealed form the government to avoid taxes or regulations or because the goods and services are illegal.

answer

Underground Economy

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Shortcomings of GDP as a Measure of Well-Being:

answer

1. The value of leisure is NOT included in GDP. 2. GDP is not adjusted for pollution or other negative effects of production. 3. GDP is not adjusted for changes in crime and other social problems. 4. GDP measures the size of the pie but not how the pie is divided up

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The value of final goods and services evaluated at current-year prices.

answer

Nominal GDP

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The value of final goods and services evaluated at base-year prices.

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Real GDP

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A measure of the average prices of goods and services in the economy.

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Price level

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A measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100.

answer

GDP deflator

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GDP Deflator =

answer

GDP Deflator = (Nominal GDP/Real GDP) x 100

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is the value of final goods and services produced by residents of the United States, even if the production takes place outside the United States.

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Gross National Product (GNP)

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is calculated as GDP minus the consumption of fixed capital, or depreciation.

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National Income

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is income received by households.

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Personal Income

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is equal to personal income minus personal tax payments.

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Disposable Personal Income

question

Which of the following is a macroeconomic study? A. the study of how households and businesses make choices. B. the study of how households and businesses interact in markets. C. the study of how the government attempts to influence the choices of households and businesses. D. the study of how fast prices in general are increasing.

answer

D. the study of how fast prices in general are increasing.

question

Gross domestic product is best defined as: A. the total quantity of goods and services produced in a country during a period of time. B. the total value of all goods that can be found in a country. C. the market value of all final goods and services produced in a country during a period of time. D. the amount of all incomes earned by all citizens of a country, including those living overseas.

answer

C. the market value of all final goods and services produced in a country during a period of time.

question

How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP? A. by adding the quantities produced of every good and service in the economy. B. by adding the value in dollar terms of all of the final gods and services produced domestically. C. by ascribing a historic value, to all of the quantities produced in the economy. D. in some cases, by adding quantities, and in others by adding the value of goods and services produced.

answer

B. by adding the value in dollar terms of all of the final gods and services produced domestically.

question

Which is the largest component of GDP? A. consumption B. investment C. government purchases D. exports

answer

A. consumption

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Which of the following are not part of "final goods," as used in the definition of GDP? A. consumption goods B. investment goods C. exports D. intermediate goods

answer

D. intermediate goods

question

Which of the following is not true of GDP? A. GDP is measured by adding up the market values of goods produced, not the quantities of goods produced. B. GDP includes both intermediate and final goods. C. GDP includes only current production. D. GDP is calculated by the Bureau of Economic Analysis (BEA)

answer

B. GDP includes both intermediate and final goods.

question

When a consumer purchases a new computer, how is that purchase counted in GDP? A. by adding the value of the various components of the computer to the final price paid for the computer by the consumer. B. by subtracting the value of the components from the price paid by the consumer. C. by counting only the value of the computer and ignoring the value of the components. D. None of the above. The production and sale of the computer would not be counted in GDP.

answer

C. by counting only the value of the computer and ignoring the value of the components.

question

Which of the following is counted in this year's GDP? A. only this year's production of goods and services. B. only goods that are both produced and sold within the United States. C. new goods produced and sold this year plus the value of used goods resold this year. D. this year's production of goods and services added to the value of GDP last year.

answer

A. only this year's production of goods and services.

question

If we add up the value of every good and service produced in the economy, we get a total that is: A. larger than GDP. B. smaller than GDP. C. equal to GDP. D. larger or smaller than GDP depending on whether the economy experiences inflation during the year.

answer

A. larger than GDP.

question

If we add up the value of every final good and service produced in the economy, we must get a total that is exactly equal to the value of: A. investment. B. net national product. C. disposable personal income. D. all of the income in the economy.

answer

D. all of the income in the economy.

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Which of the following would be considered a factor of production? A. capital B. natural resources C. entrepreneurship D. all of the above

answer

D. all of the above

question

In the circular-flow diagram, who supplies factors of production in exchange for income? A. households B. firms C. the government D. all of the above

answer

A. households

question

Complete the following sentence: Total income in the economy equals the sum of wages, interest, ____________ and ____________. A. dividends; transfer payments B. rent; profit C. taxes; transfer payments D. disposable income; net exports

answer

B. rent; profit

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The flow of funds from _______________ into the financial system makes it possible for government and firms to borrow. A. governments and firms B. households C. investment banks D. exports

answer

B. households

question

An important conclusion to draw from the circular-flow diagram is that: A. personal consumption expenditures are equal to the value of GDP. B. only the value of total income equals the value of GDP, not the value of expenditures. C. only the total value of expenditures equals the value of GDP, not the value of income. D. we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income.

answer

D. we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income.

question

Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics? A. medical care B. education C. a haircut D. a new house

answer

D. a new house

question

Which of the following is counted in the gross private domestic investment category used by the Bureau of Economic Analysis when measuring GDP? A. business fixed investment B. residential investment C. changes in business inventories D. all of the above

answer

D. all of the above

question

Which of the following is included in the economist's definition of investment? A. the purchase of new machines, factories, or houses. B. the purchase of a share of stock. C. the purchase of a rare coin or deposit in a savings account. D. all of the above.

answer

A. the purchase of new machines, factories, or houses.

question

In calculating GDP, which levels of government spending are included in government purchases? A. spending by the federal government only. B. spending by the federal, state, and local governments. C. spending by the federal government and some state governments, but not local governments. D. spending by governments only as they relate to national security, social welfare, and other national programs.

answer

B. spending by the federal, state, and local governments.

question

When accounting for exports and imports in GDP, which of the following is correct? A. Exports are added to the other categories of expenditures. B. Imports are added to the other categories of expenditures. C. Both exports and imports are added to the other categories of expenditures. D. Both exports and imports are subtracted from the other categories of expenditures.

answer

A. Exports are added to the other categories of expenditures.

question

In the equation that sums up the information on the components of GDP, Y= C + I + G + NX, which component has the largest dollar value? A. C B. I C. G D. NX

answer

A. C

question

Which of the following is true about the consumption component of U.S. GDP in 2008? A. Consumer spending on durable and nondurable goods was greater than consumption of services. B. Consumer spending on durable goods was greater than the sum of spending on nondurable goods and on services. C. Consumer spending on nondurable goods was greater than the sum of spending on nondurable goods and on services. D. Consumer spending on services was greater than the sum of spending on durable and nondurable goods.

answer

D. Consumer spending on services was greater than the sum of spending on durable and nondurable goods.

question

Which of the following is true about the government purchases component of U.S. GDP in 2008? A. The entire amount was composed of federal government purchases because state and local governments are not included. B. Most of the spending on education and law enforcement occurs at the federal level. C. Purchases by the federal government are greater than purchases by state and local governments. D. Purchases by state and local governments are greater than purchases by the federal government.

answer

D. Purchases by state and local governments are greater than purchases by the federal government.

question

The difference between the price the firm sells a good for and the price it paid other firms for intermediate goods is called: A. producer surplus. B. fixed investment. C. value added. D. profit.

answer

C. value added.

question

Household production and the underground economy: A. are fully accounted for in GDP figures gathered by the Commerce Department B. are not considered formal production of goods and services and, therefore, are not included when calculating GDP. C. are important but unaccounted for int he Commerce Department's estimate of GDP. D. are irrelevant because they constitute only a very small fraction of GDP for most countries.

answer

C. are important but unaccounted for int he Commerce Department's estimate of GDP.

question

Which of the following is not a shortcomings of GDP as a measure of welfare? A. It does not include the value of leisure. B. It is not adjusted for the effects of pollution caused by the production of goods and services. C. It only counts final goods and services and not intermediate goods. D. It is not adjusted for crime and other social problems.

answer

C. It only counts final goods and services and not intermediate goods.

question

According to most economists, is not counting household production or production in the underground economy a serious shortcoming of GDP? A. most economists would answer :no" because these types of production do not affect the most important use of the GDP measure, which is to see how the economy is performing over short periods of time. B. Most economists would answer "yes" because these types of production are likely to grow significantly from one year to the next. C. Most economists would answer "no" because the purpose of measuring GDP is to see how the economy performs over fairly long periods of a decade or more. D. Most economists would answer "yes" because these types of production are likely to be a large component of the economy (or large percentage of measured GDP), especially in countries like the Untied States.

answer

A. most economists would answer :no" because these types of production do not affect the most important use of the GDP measure, which is to see how the economy is performing over short periods of time.

question

In many developing countries, the informal sector is ___________ because taxes are __________ and government regulations are __________. A. large; low; minimal B. large; high; extensive C. small; low; minimal D. small; low; extensive

answer

B. large; high; extensive

question

If Americans still worked 60 hour weeks, as they did in 1890, A. both GDP and the well-being of the typical person would be much higher than they are. B. both GDP and the well-being of the typical person would be lower than they are. C. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher. D. GDP would be lower than it is, but the well-being of the typical person would be higher.

answer

C. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.

question

As the value of a country's GDP increases, the country is likely to: A. devote more resources to pollution reduction. B. devote fewer resources to pollution reduction. C. include the value of pollution in calculating GDP. D. exclude the value of pollution in calculating GDP.

answer

A. devote more resources to pollution reduction.

question

Real GDP is: A. the value of goods and services evaluated at current year prices. B. the value of goods and services evaluated at base year prices. C. equal to the value of nominal GDP in every year except for the base year. D. a measure of output that was replaced by nominal GDP some time ago.

answer

B. the value of goods and services evaluated at base year prices.

question

Which measure of GDP represents changes int he quantity of goods and services produced in the economy, holding prices constant? A. Nominal GDP B. Real GDP C. Net national product D. None of the above. All GDP measures represent changes in both prices and quantities.

answer

B. Real GDP

question

Suppose that the base year is 200 and we want to calculate the real GDP for 2009. Which procedure would you use? A. Multiply the quantities in 2000 by the prices in 2009, and add up the results. B. Multiply the quantities in 2009 by the prices in 2009, and add up the results. C. Multiply the quantities in 2009 by the prices in 2000, and add up the results. D. Multiply the quantities in 2009 by the prices in 2009. and subtract them from nominal GDP in 2000.

answer

C. Multiply the quantities in 2009 by the prices in 2000, and add up the results.

question

In an economy with rising prices, compared to the base year, A. nominal GDP i larger than real GDP in years after the base year. B. nominal GDP is equal to real GDP in years after the base year. C. nominal GDP is larger than real GDP in years before the base year. D. nominal GDP is equal to real GDP in year before the base year.

answer

A. nominal GDP i larger than real GDP in years after the base year.

question

Growth in the economy is almost always measured as: A. growth in nominal GDP B. growth in real GDP. C. growth in net national product. D. the growth of personal disposable income.

answer

B. growth in real GDP.

question

Using the year 2000 as the base year, and assuming that prices during the 1990s were lower on average than prices in 2000, we can conclude that: A. nominal GDP was lower than real GDP in the 1990s. B. nominal GDP was higher than real GDP int he 1990s. C. nominal GDP was equal to real GDP during all these years. D. neither nominal GDP nor real GDP were good measures of GDP.

answer

A. nominal GDP was lower than real GDP in the 1990s.

question

Over time, prices may change relative to each other. To allow for this, the Bureau of Economic Analysis calculates: A. nominal GDP using chain weights. B. real GDP and the price deflator using chain weights. C. rela GDP and nominal GDP using only base-year prices. D. real GDP using the prices in the current year.

answer

B. real GDP and the price deflator using chain weights.

question

If the GDP deflator has a value of 105.0, then A. the inflation rate is 1.05% B. the inflation rate is 0.05% C. the inflation rate is 5% D. prices have risen 5% since the base year

answer

D. prices have risen 5% since the base year

question

The total national income actually received by a country's residents is: A. larger than the value of GDP. B. smaller than the value of GDP. C. exactly equal to the value of GDP. D. smaller or larger than the value of GDP depending on the year.

answer

B. smaller than the value of GDP.

question

Disposable personal income is equal to: A. personal income minus personal tax payments plus government transfer payments. B. personal income minus government transfer payments plus personal tax payments. C. personal income minus Social Security payments. D. the income households have to consume, save, and pay taxes

answer

A. personal income minus personal tax payments plus government transfer payments.

question

The best measure of the income households actually have available to spend is: A. national income B. disposable personal income C. net national product D. gross domestic product

answer

B. disposable personal income

question

GDP is a measurement of the market value of final goods and services produced in an economy in one year. What is the difference between a final good and an intermediate good? Why do we only count final goods in GDP and not intermediate goods?

answer

A final good is one that is sold to the ultimate user of the product. It is not being purchased with the plan to transform the good and resell it. The alternative to a final good, and intermediate good, is purchased with the intent of using that good as a components in another good or service that is sold. Intermediate goods are inputs in a production process. Intermediate goods are excluded because the value of the final goods includes the value of the intermediate goods which are a component of the final good.

question

True or False: Macroeconomics is the study of the economy as a whole.

answer

True

question

True or False: GDP is the value of all goods and services produced in a country during a time period.

answer

False; GDP measures ONLY final goods and services, in an economy, over a well-defined period

question

True or False: GDP measures the value of final goods and services in an economy or the value of the income earned in producing those goods and services in that economy, for a specific time period.

answer

True

question

True or False: Consumption spending is divided into two parts, durable goods and non-durable goods.

answer

False; durables, non-durables and services

question

True or False: The purchase of 100 shares of Apple computer stock is an example of investment spending.

answer

False; this is a financial transaction, not investment.

question

True or False: Net exports (NX) are defined as imports minus exports.

answer

False; exports minut imports

question

True or False: Value added is the price at which a firm sells its output minus the outlay paid to obtain the inputs to produce its output.

answer

True

question

True or False: Over a given time period, the sum of the value added by all firms is equal to a country's GDP.

answer

True

question

True or False: In the United States, household production and the underground economy is about 50 percent of GDP.

answer

False; about 10%

question

True or False: The value of GDP is reduced to reflect the impact of pollution generated by production.

answer

False; GDP does not subtract "bads" generated by production

question

True or False: Real GDP provides a more meaningful measure of output than nominal GDP.

answer

True

question

True or False: For every year, nominal GDP is always greater than real GDP.

answer

False; this is true only for years where prices are greater than base year prices

question

True or False: Personal income is the best measure of the income households have available for spending.

answer

False; disposable personal income is better because it subtracts taxes.

question

Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value? A. If, in macroeconomics, we measured production using quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by Apple, to gallons of milk, and so on. B. When we measure total production, we can't just add together the quantities of every good and service because the result would be meaningless. C. Measuring production using market value in dollar terms allows us to add together many different goods and services. D. Both A and C. E. All of the above

answer

E. All of the above.

question

If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)? A. Equal: Measured GDP is calculated by adding the values of every good and service sold during the year. B. Larger: The value of all goods and services sold would include intermediate goods. C. Larger: Measured GDP includes quantities of goods and services, not the values of goods and services. D. Smaller: Measured GDP includes the values of every good and service sold AND the market value of all final goods.

answer

B. Larger: The value of all goods and services sold would include intermediate goods.

question

In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income? A. Taxes on the production of goods and services are determined according to individual income. B. Every penny spent on a good or service must end up as someone's income. C. People tend to spend all of their income on goods and services. D. Domestic expenditures on imports generally equal foreign expenditures on U.S. exports.

answer

B. Every penny spent on a good or service must end up as someone's income.

question

Which equation represents the relationship between GDP and the four major expenditures components? A. Y = (C+I) - (G+NX) B. Y = [(C+I)/(G+NX)] C. Y = C + I + G + NX D. Y = C(I + G + NX)

answer

C. Y = C + I + G + NX

question

What are the four major components of expenditures in GDP?

answer

Consumption, Investment, Government Purchases, and Net Exports

question

What is the difference between the value of a firm's final product and the value added by the firm to the final product? A. The value of a firm's final product is the difference between the sale price and the price of intermediate goods; value added is the sale price. B. The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods. C. There is no difference between the value of a firm's final product and the value added by the firm to the final product. D. The value of a firm's final product is profit; the value added is the total cost of production.

answer

B. The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.

question

Indicate whether the following transaction represents the purchase of a final good. "The purchase of tires from Bridgestone tire company by an automobile manufacturer. "

answer

Is not the purchase of a final good.

question

Indicate whether the following transaction represents the purchase of a final good. "The purchase of an aircraft carrier by the federal government."

answer

Is the purchase of a final good.

question

Indicate whether the following transaction represents the purchase of a final good. "The purchase of domestic wine by a French consumer."

answer

Is the purchase of a final good.

question

Indicate whether the following transaction represents the purchase of a final good. "The purchase of a new machine tool by the Ford Motor Company."

answer

Is the purchase of a final good.

question

Indicate whether you agree or disagree with the following statement: "In years when people buy few shares of stock, investment will be low and, therefore, so will gross domestic product (GDP)." A. Agree: GDP = C + I + G + NX. Therefore, as "I" (investment) decreases, GDP decreases. B. Agree: When investment is low, people must have less money to spend. Therefore, GDP decreases. C. Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases. D. While GDP will be low in this cause, it is the result of a decrease in consumer expenditure on stocks, not investment spending.

answer

C. Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.

question

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "You purchase a new for Escape Hybrid from a Ford dealer.

answer

Consumption Expenditure

question

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "You purchase a 2008 (preowned) Ford Escape Hybrid from a friend."

answer

Not included in GDP calculation

question

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana."

answer

Not included in GDP calculation

question

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China."

answer

Net Export Expenditure

question

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "Ford purchases new machine tools to use in its Missouri Escape factory."

answer

Investment Expenditure

question

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "The state of Missouri builds a new highway to help improve access to the Ford Escape plant."

answer

Government Expenditure

question

Suppose that a simple economy produces only the following four goods and services: textbooks, hamburgers, shirts, and cotton. Further, assume that ALL of the cotton is used in the production of shirts. Use the information in the following table to calculate Nominal Gross Domestic Product (Nominal GDP) for 2011. PRODUCTION AND PRICE STATISTICS FOR 2011: (Product) (Quantity) (Price) (Textbooks) (125) ($65.00) (Hamburgers) (110) (3.00) (Shirts) (60) (30.00) (Cotton) (7,000) (0.75) The Nominal GDP for the year 2011 is $__________.

answer

$ 10,255.00 Step 1: Multiply the quantity and price of each product. Step 2: Figure out which products are final goods and which are intermediate goods. Step 3: Sum the total market value for all final goods in this simple economy to get the nominal GDP for 2011.

question

PART 1: Review the following events: 1. A farmer sells $300 worth of wheat to an agricultural products distributor. 2. The distributor trims, packages, and sells the wheat to a state-owned baker for $350. 3. The state-owned bakery uses all of the wheat to make bread and then sells it for $325. A. If for simplicity, we ignore the value of inputs used to grow the wheat-such as seeds, labor, and fertilizer, then the farmer's value added is $_____. B. The value added for the distributor is $_____. C. The value added for the state-owned bakery is $_____. PART 2: Would a state-owned firm that adds a negative value added to its products operate differently than a free market firm that adds negative value added to its products? A. Yes. Under the circumstances, the private, free-market firm would quickly shut down, while the state-owned firm could continue operating, ceteris paribus. B. No. Both the sate-owned firm and the private, free-market firm would continue to operate that same regardless of negative value added. C. Yes. Under the circumstances, the state-owned firm would quickly shut down, while the private, free-market firm could continue operating, ceteris paribus. D. No. Both the state-owned and the private, free-market firm would be forced to shut down immediately.

answer

PART 1: A. $300 B. $50 C. $-25 PART 2: A. Yes. Under the circumstances, the private, free-market firm would quickly shut down, while the state-owned firm could continue operating, ceteris paribus.

question

What are the four categories of income?

answer

Wages, interest, rent, and profit.

question

How does the size of a country's GDP affect the quality of life of the country's people? A. There is an inverse relationship between GDP and quality of life. B. Generally, the more goods and services people have, the worse off they are. C. When GDP is high, production from the underground economy, and therefore the crime rate is high. D. Generally, the more goods and services people have, the better off they are.

answer

D. Generally, the more goods and services people have, the better off they are.

question

PART 1: GDP is an imperfect measure of economic well-being because it fails to measure what types of production? PART 2: Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being? A. The value of leisure if not included in GDP. B. GDP is not adjusted for pollution and it does not account for unequal income distribution. C. GDP is nto adjusted for crime or other social problems. D. All of the above. E. A and C only.

answer

PART 1: Household production and the underground economy. PART 2: D. All of the above.

question

Indicate whether the following is likely to increase or decrease the measured level of GDP. "When the number of people working outside the home decreases, the measured level of GDP __________."

answer

decreases

question

Indicate whether the following is likely to increase or decrease the measured level of GDP. "When there is a sharp decrease in the crime rate, the measured level of GDP ________."

answer

may increase or decrease

question

Indicate whether the following is likely to increase or decrease the measured level of GDP. "If higher tax rates cause more people to hide the income they earn, the measure GDP __________."

answer

decreases

question

A report of the World Bank, an international organization devoted to increasing economic growth in developing countries, includes the following statements: "Informal economic activities pose a particular measurement problem [in calculating GDP], especially in developing countries, where much economic activity may go unrecorded." PART 1: What does the World Bank mean by "informal economic activities"? A. Informal economic activities refer to leisure activities. B. In many developing countries, informal economic activities refer to activities in the underground economy. C. Informal economic activities adjust GDP for pollution or other negative effects of production. D. In many developing countries, informal economic activities refer to the sector in which output of goods and services is measured. PART 2: Why do these activities make it harder to measure GDP and, as a result, the standard of living? A. Informal economic activities refer to leisure activities which are not included in measured GDP and will therefore underestimate economic well-being. B. If a large portion of an economy's production is done in the underground economy, measured GDP will overestimate production and economic well-being. C. If a large portion of an economy's production is done in the underground economy, measured GDP will underestimate production and economic well-being. D. When production from the underground economy is high, government spending is generally low.

answer

PART 1: B. In many developing countries, informal economic activities refer to activities in the underground economy. PART 2: C. If a large portion of an economy's production is done in the underground economy, measured GDP will underestimate production and economic well-being.

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Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next? A. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities. B. Nominal GDP separates increases in GDP as a result fo price changes from increases in GDP as a result of quantity changes. C. GDP is a measure of production in quantity terms. D. All of the above E. A and B only

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A. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.

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How does real GDP deal with the problem inflation causes with nominal GDP? A. Real GDP uses the prices of goods and services int he base year to calculate the value of goods in all other years. B. By keeping prices constant,w e know that changes in real GDP represent changes in the quantity of output produced. C. Real GDP separates price changes from quantity changes. D. All of the above. E. A and C only

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D. All of the above.

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How is the GDP deflator calculated?

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GDP deflator = (Nominal GDP/Real GDP) x 100

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Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in the following situation: "In years after the base year, nominal GDP __________ real GDP."

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is greater than

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Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in the following situation: "In the base year, nominal GDP ____________ real GDP."

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is equal to

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Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in the following situation: "In years prior to the base year, nominal GDP ___________ real GDP."

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is less than

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Indicate whether you agree or disagree with the following statement: "Whenever real GDP declines, nominal GDP must also decline." A. Agree. Both real GDP and nominal GDP decline if output falls and prices remain constant. B. Agree. Both real GDP and nominal GDP decline if price falls and output remains constant. C. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise. D. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices fall.

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C. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.

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Indicate whether you agree or disagree with the following statement: "If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline." A. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices fall. B. Agree. If prices fall, real GDP and nominal GDP will both fall if output increases. C. Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall. D. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.

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C. Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall.

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If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast? A. Gross national product B. Net national product C. Disposable personal income D. Personal income

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C. Disposable personal income

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Which of the following would be included in the gross national product (GNP) of the United States? A. Production from a U.S. firm that operates in Mexico. B. Production from an Hungarian citizen who works in Denver, CO. C. Production from a Canadian firm that operates in Montana. D. All of the above are included in the GNP of the U.S.

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A. Production from a U.S. firm that operates in Mexico.

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The largest component of gross domestic income is: A. rent B. profits C. interest D. wages

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D. wages

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National income is: A. GNP plus depreciation. B. GDP minus depreciation. C. GDP minus sales taxes. D. NNP minus income taxes.

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B. GDP minus depreciation.

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The Personal Income (PI) of the United States is equal to: A. the value of the total income received by all households int he United States. B. the market value of all final goods and services produced within the United States in a given period of time. C. the value of the total income received by all households in the United States, after personal taxes are paid. D. the market value of all final goods and services produced by U.S. factors of production in a given period of time.

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A. the value of the total income received by all households int he United States.

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Personal income is: A. national income minus income taxes B. national income minus retained corporate earnings plus government transfer payments and interest on government bonds. C. national income plus government transfer payments. D. equal to the value of all final goods and services produced within a country's borders during one year.

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B. national income minus retained corporate earnings plus government transfer payments and interest on government bonds.

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Why is GDP an imperfect measurement of total production in the economy?

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GDP does not include household production or production from the underground economy.

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Disposable personal income is: A. Personal income minus personal taxes. B. National income minus depreciation. C. National income minus personal taxes. D. Personal income minus indirect business taxes.

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A. Personal income minus personal taxes.

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If the base year is 2001, what is generally true of the relationship between nominal GDP and real GDP? A. RGDP = NGDP because prices are stable. B. RGDP > NGDP because prices are falling. C. RGDP < NGDP because prices are rising. D. The relationship is uncertain without more information on prices.

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C. RGDP < NGDP because prices are rising.

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Indicate whether the following is a final good, an intermediate good, or neither: Coffee beans purchased by a coffee shop.

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Intermediate good

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Indicate whether the following is a final good, an intermediate good, or neither: One share of Google stock.

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neither

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Indicate whether the following is a final good, an intermediate good, or neither: A new pick-up truck purchase by a consumer.

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Final good

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Indicate whether the following is a final good, an intermediate good, or neither: A new home purchase by a family.

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Final good

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