Multiple choice ch 2

Chapter 23 Measuring a Nation’s Income Sec00 Measuring a Nation’s Income 1 Statistics that are of particular interest to macroeconomists a are largely ignored by the media b are widely reported by the[.]

Chapter 23: Measuring a Nation’s Income

Sec00: Measuring a Nation’s Income

1 Statistics that are of particular interest to macroeconomists

a are largely ignored by the media

b are widely reported by the media

c include the equilibrium prices of individual goods and services

d tell us about a particular household, firm, or market

2 Which of the following is not a question that macroeconomists address?

a Why is average income high in some countries while it is low in others?

b Why does the price of oil rise when war erupts in the Middle East?

c Why do production and employment expand in some years and contract in others?

d Why do prices rise rapidly in some periods of time while they are more stable in other periods?

9 Which of the following statistic is usually regarded as the best single measure of a society’s economic well-being?

a the unemployment rate

b the inflation rate

c gross domestic product

d the trade deficit

Sec01- Measuring a Nation’s Income – The Economy’s Income and Expenditure

2 Gross domestic product measures two things at once:

a the total spending of everyone in the economy and the total saving of everyone in the economy

b the total income of everyone in the economy and the total expenditure on the economy's output of

goods and services

c the value of the economy's output of goods and services for domestic citizens and the value of the

economy's output of goods and services for the rest of the world

d the total income of households in the economy and the total profit of firms in the economy

3 For an economy as a whole,

a wages must equal profit

b consumption must equal saving

c income must equal expenditure

d the number of buyers must equal the number of sellers

4 For an economy as a whole, income must equal expenditure because

a the number of firms is equal to the number of households in an economy

b international law requires that income equal expenditure

c every dollar of spending by some buyer is a dollar of income for some seller

d every dollar of saving by some consumer is a dollar of spending by some other consumer

5 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 a simple circular-flow diagram, total income and total expenditure are

a never equal because total income always exceeds total expenditure

b seldom equal because of the ongoing changes in an economy’s unemployment rate

c equal only when one dollar is spent on goods for every dollar that is spent on services

d always equal because every transaction has a buyer and a seller

Sec02 – Measuring a Nation’s Income – The Measurement of Gross Domestic Product

2 Gross domestic product is defined as

a the quantity of all final goods and services demanded within a country in a given period of time

b the quantity of all final goods and services supplied within a country in a given period of time

c the market value of all final goods and services produced within a country in a given period of time

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d Both (a) and (b) are correct.

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8 If the price of a DVD player is three times the price of a CD player, then a DVD player contributes

a more than three times as much to GDP as does a CD player

b less than three times as much to GDP as does a CD player

c exactly three times as much to GDP as does a CD player

d to GDP but a CD player does not contribute to GDP

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18 If Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself, then GDP

a necessarily rises

b necessarily falls

c will be unaffected because the same service is produced in either case

d will be unaffected because car maintenance is not included in GDP

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28 A steel company sells some steel to a bicycle company for $150 The bicycle company uses the steel to produce a bicycle, which it sells for $250 Taken together, these two transactions contribute

a $150 to GDP

b $250 to GDP

c between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it

sold the bicycle

d $400 to GDP

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38 Transactions involving items produced in the past, such as the sale of a 5-year-old automobile by a used car dealership

or the purchase of an antique rocking chair by a person at a yard sale, are

a included in current GDP because GDP measures the value of all goods and services sold in the

current year

b included in current GDP but valued at their original prices

c not included in current GDP because GDP only measures the value of goods and services produced

in the current year

d not included in current GDP because these items have no current value

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49 Which of the following items is included in U.S GDP?

a the estimated value of production accomplished at home, such as backyard production of fruits and

vegetables

b the value of illegally-produced goods and services

c the value of cars and trucks produced in foreign countries and sold in the U.S

d None of the above is included in U.S GDP

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64 U.S GDP and U.S GNP are related as follows:

a GNP = GDP + Value of exported goods - Value of imported goods

b GNP = GDP - Value of exported goods + Value of imported goods

c GNP = GDP + Income earned by foreigners in the U.S - Income earned by U.S citizens abroad

d GNP = GDP - Income earned by foreigners in the U.S + Income earned by U.S citizens abroad

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73 Which of the following is an example of depreciation?

a falling stock prices

b the retirement of several employees

c computers becoming obsolete

d All of the above are examples of depreciation

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Sec 03- Measuring a Nation’s Income – The Components of GDP

13 For the purpose of calculating GDP, investment is spending on

a stocks, bonds, and other financial assets

b real estate and financial assets such as stocks and bonds

c capital equipment, inventories, and structures, including household purchases of new housing

d capital equipment, inventories, and structures, excluding household purchases of new housing

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22 The value of goods added to a firm's inventory in a certain year is treated as

a consumption, since the goods will be sold to consumers in another period

b saving, since the goods are being saved until they are sold in another period

c investment, since GDP aims to measure the value of the economy's production that year

d spending on durable goods, since the goods could not be inventoried unless they were durable

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33 Which of the following items is counted as part of government purchases?

a The federal government pays the salary of a Navy officer

b The state of Nevada pays a private firm to repair a Nevada state highway

c The city of Las Vegas, Nevada pays a private firm to collect garbage in that city

d All of the above are correct

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43 After the terrorist attacks on September 11, 2001, governments within the United States raised expenditures to increase security at airports These purchases of goods and services are

a not included in GDP since they do not represent production

b not included in GDP since the government collects taxes to pay for them

c included in GDP since government expenditures on goods and services are included in GDP

d included in GDP only to the extent that the federal government, rather than state or local

governments, paid for them

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53 If a U.S citizen buys a dress made in Nepal by a Nepalese firm, then

a U.S consumption increases, U.S net exports decrease, and U.S GDP decreases

b U.S consumption increases, U.S net exports decrease, and U.S GDP is unaffected

c U.S consumption decreases, U.S net exports increase, and U.S GDP increases

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

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63 In the economy of Wrexington in 2008, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $2000, and imports were $600 What was Wrexington’s investment in 2008?

Sec04-Measuring a Nation’s Income – Real versus Nominal GDP

If total spending rises from one year to the next, then

a the economy must be producing a larger output of goods and services

b goods and services must be selling at higher prices

c either the economy must be producing a larger output of goods and services, or goods and services

must be selling at higher prices, or both

d employment or productivity must be rising

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11 When economists talk about growth in the economy, they measure that growth as the

a absolute change in nominal GDP from one period to another

b percentage change in nominal GDP from one period to another

c absolute change in real GDP from one period to another

d percentage change in real GDP from one period to another

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21 In the economy of Wrexington in 2008, real GDP was $5 trillion and the GDP deflator was 200 What was

31 Suppose an economy produces only cranberries and maple syrup In 2006, 50 units of cranberries are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit In 2005, the base year, the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit For 2006,

a nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90

b nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 111.1

c nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 90

d nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 111.1

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62 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

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Sec05: Measuring a Nation’s Income – Is GDP a good measure of economic well-being?

1 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

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11 Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size In the

meantime, population grew by 40 percent and prices rose by 100 percent What happened to real GDP per person?

a It more than doubled

b It increased, but it less than doubled

c It was unchanged

d It decreased

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15 International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with

a longer life expectancy and a lower percentage of the population that is literate

b longer life expectancy and a higher percentage of the population that is literate

c very nearly the same life expectancy and a lower percentage of the population that is literate

d very nearly the same life expectancy and a higher percentage of the population that is literate

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Chapter 24

Measuring the Cost of Living

Sec00-Measuring the Cost of Living

2 The consumer price index is used to

a monitor changes in the level of wholesale prices in the economy

b monitor changes in the cost of living over time

c monitor changes in the level of real GDP over time

d monitor changes in the stock market

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12 The inflation rate you are likely to hear on the nightly news is calculated from

a the GDP deflator

b the CPI

c the Dow Jones Industrial Average

d the unemployment rate

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Sec01- Measuring the Cost of Living – the Consumer Price Index

1 The CPI is a measure of the overall cost of

a the inputs purchased by a typical producer

b the goods and services purchased by a typical consumer

c the goods and services produced in the economy

d the stocks on the New York Stock Exchange

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11 In the calculation of the CPI, sweaters are given greater weight than jeans if

a the price of sweaters is higher than the price of jeans

b it costs more to produce sweaters than it costs to produce jeans

c sweaters are more readily available than jeans are to the typical consumer

d consumers buy more sweaters than jeans

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21 The inflation rate is calculated

a by determining the change in the price index from the preceding period

b by determining the change in the price index from the base year

c by determining the percentage change in the price index from the preceding period

d by determining the percentage change in the price index from the base year

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31 The price index was 120 in 2006 and 127.2 in 2007 What was the inflation rate?

41 In a particular economy, the price index was 270 in 2005 and 300 in 2006 Which of the following statements is correct?

a The economy experienced a rising price level between 2005 and 2006

b The economy experienced a higher inflation rate between 2005 and 2006 than it had experienced

between 2004 and 2005

c The inflation rate between 2005 and 2006 was 30 percent

d All of the above are correct

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51 The price index was 128.96 in 2006, and the inflation rate was 24 percent between 2005 and 2006 The price index in

61 Suppose a basket of goods and services has been selected to calculate the consumer price index In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75 Which of the following statements is correct?

a Using 2005 as the base year, the economy’s inflation rate was higher in 2007 than it was in 2006

b If 2007 is the base year, then the CPI is 33.75 in 2006

c If the CPI is 156.25 in 2007, then 2005 is the base year

d Using 2005 as the base year, the economy’s inflation rate for 2006 was 27 percent

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106 When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

a Try to include all the goods and services that the typical consumer buys

b Try to weight the goods and services that the typical consumer buys according to how much

consumers buy of each item

c Survey consumers to determine what the typical consumer buys

d Survey sellers to determine what the typical consumer buys

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123 The goal of the consumer price index is to measure changes in the

a costs of production

b cost of living

c relative prices of consumer goods

d production of consumer goods

129 When the relative price of a good decreases, consumers respond by buying

a a larger quantity of that good and a larger quantity of substitutes for that good

b a larger quantity of that good and a smaller quantity of substitutes for that good

c a smaller quantity of that good and a larger quantity of substitutes for that good

d a smaller quantity of that good and a smaller quantity of substitutes for that good

135 Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years To which problem in the construction of the CPI is this situation most relevant?

a substitution bias

b introduction of new goods

c unmeasured quality change

d income bias

160 The problems with using the consumer price index as a measure of the cost of living are important because

a even the appearance of high rates of inflation cause voters to become disenchanted

b politicians have manipulated the measurement problems to their advantage

c many government programs use the CPI to adjust for changes in the overall level of prices

d if the price level is overstated, consumers will be taken advantage of by sellers of consumer goods

162 Two alternative measures of the overall level of prices are

a the inflation rate and the consumer price index

b the inflation rate and the GDP deflator

c the GDP deflator and the consumer price index

d the cost of living index and nominal GDP

164 An important difference between the GDP deflator and the consumer price index is that

a the GDP deflator reflects the prices of goods and services bought by producers, whereas the

consumer price index reflects the prices of goods and services bought by consumers

b the GDP deflator reflects the prices of all final goods and services produced domestically, whereas

the consumer price index reflects the prices of goods and services bought by consumers

c the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens,

whereas the consumer price index reflects the prices of all final goods and services bought by

consumers

d the GDP deflator reflects the prices of all final goods and services bought by producers and

consumers, whereas the consumer price index reflects the prices of all final goods and services

bought by consumers

171 A Japanese automobile company produces cars in the United States, with some of those cars being exported to other nations and some of them being sold within the United States If the prices of these cars increase, then

a the GDP deflator and the CPI will both increase

b the GDP deflator will increase and the CPI will be unchanged

c the GDP deflator will be unchanged and the CPI will increase

d the GDP deflator and the CPI will both be unchanged

187 The basket of goods in the consumer price index changes

a occasionally, as does the group of goods used to compute the GDP deflator

b automatically, as does the group of goods used to compute the GDP deflator

c occasionally, whereas the group of goods used to compute the GDP deflator changes automatically

d automatically, whereas the group of goods used to compute the GDP deflator changes occasionally

Sec02-Measuring the Cost of Living – Correcting Economic Variables for the Effects of Inflation

1 The primary purpose of measuring the overall level of prices in the economy is to

a allow for the measurement of GDP

b allow consumers to know what kinds of prices to expect in the future

c allow for the comparison of dollar figures from different points in time

d allow for the comparison of dollar figures from the same point in time

32 Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006 The consumer price index was 177 in 2001 and 221.25

in 2006 Ruben's 2006 salary in 2001 dollars is

a $20,000; thus, Ruben's purchasing power increased between 2001 and 2006

b $20,000; thus, Ruben's purchasing power decreased between 2001 and 2006

c $64,000; thus, Ruben's purchasing power increased between 2001 and 2006

d $64,000; thus, Ruben's purchasing power decreased between 2001 and 2006

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