Question 1

Which of the following is not true about Gross Domestic Product?

Accepted Answer

A)  It includes only final goods and services.
B)  It reflects production in a particular year.
C)  Intermediate goods and services are excluded to prevent double counting.
D)  It may be measured by totalling the spending by each group in society.
E)  It includes transfer payments.F) B) and E)
G) A) and E)

Question 2

Which of the following is an injection into the circular flow?

Accepted Answer

A)  consumption
B)  exports
C)  taxes
D)  saving
E)  government borrowingF) A) and C)
G) C) and D)

Question 3

Which of the following is a leakage from the circular flow?

Accepted Answer

A)  government purchases of goods and services
B)  saving
C)  transfer payments
D)  exports
E)  consumption expendituresF) A) and E)
G) B) and E)

Question 4

A farmer grows wheat and sells it to a bakery for $5. The bakery bakes the wheat into bread, which it sells to a distributor for $20. The distributor sells the bread to a supermarket for $30, which sells the bread to customers for $50. Which of the following is true?

Accepted Answer

A)  The value added by the distributor is $30.
B)  The supermarket contributed more, in value added, than the bakery.
C)  As a result of this activity, GDP rises by $50 minus the value added at each stage of production.
D)  Counting the value added at each stage instead of the final selling price creates a serious problem of double counting.
E)  The value added by the farmer is $20 because the wheat, which is worth $5, is necessary for each of the three remaining stages of production.F) B) and D)
G) None of the above

Question 5

Aggregate income is defined as

Accepted Answer

A)  the sum of income earned by all laborers in the world economy
B)  the sum of income earned by all workers in the private sector
C)  the total income of all individuals who contribute resources to the market production of output
D)  total income after all income taxes but before paying other payroll taxes
E)  total income after purchases of necessitiesF) A) and E)
G) A) and D) C

Question 6

The U.S. Department of Commerce has been developing so called "green accounting" to

Accepted Answer

A)  focus attention to the money side of GDP
B)  reflect the impact of pollution and natural resource depletion
C)  properly value the output of very new firms
D)  illustrate the difference between GDP and real GDP
E)  measure the value of the output produced by inexperienced workersF) All of the above
G) B) and C)

Question 7

Real GDP is measured in

Accepted Answer

A)  current-year prices
B)  base-year prices
C)  nominal dollars
D)  quality of goods produced
E)  hours of employmentF) A) and B)
G) A) and C)

Question 8

Which of the following is true about the consumer price index (CPI)  and the GDP price index?

Accepted Answer

A)  Both measures weigh prices by the quantities consumed in some base year.
B)  Both yield identical numbers for price level changes for any two years.
C)  A price level change indicated by the CPI is usually smaller because it includes only prices for a limited number of goods.
D)  The CPI measures changes in relative prices of goods; the GDP price index measures changes in the price level.
E)  A price level change indicated by the GDP price index is usually smaller because people tend to find substitutes for goods whose prices rise sharply.F) A) and B)
G) A) and C)

Question 9

Which of the following would not increase U.S. GDP?

Accepted Answer

A)  increased demand in Costa Rica for California-made personal computers
B)  increased demand in Alabama for California-made personal computers
C)  increased production of computers in California, but no increase in the number sold
D)  increased shipments of computers from the U.S. to Canada
E)  increased shipments of Ghanian cocoa to the United States on Greek vesselsF) All of the above
G) A) and C)

Question 10

Chain-weighted indexes have less bias compared to fixed-weight indexes.

Accepted Answer

A) True 
 B)False

Question 11

If the CPI overstated inflation by 1 percent per year, then the average real wage, instead of dropping by 2 percent in the last two decades, actually increased by about

Accepted Answer

A)  1 percent
B)  2 percent
C)  10 percent
D)  20 percent
E)  3 percentF) C) and D)
G) A) and E)

Question 12

GDP is not a perfect measure of material well-being because it ignores

Accepted Answer

A)  production of goods and services by the government
B)  goods produced in the United States but shipped overseas
C)  negative externalities
D)  consumer spending on services
E)  business spending on equipmentF) C) and D)
G) D) and E)

Question 13

The gross domestic product does capture changes in the

Accepted Answer

A)  prices at which final goods are sold
B)  availability of leisure time
C)  quality of products when prices do not change
D)  availability of new products
E)  All of the answers are correctF) A) and B)
G) D) and E)

Question 14

Depreciation refers to a decrease in the value of a durable good caused by

Accepted Answer

A)  an increase in the price level
B)  changes in the depreciation allowance
C)  wear and tear over time
D)  changes in tax law
E)  a decrease in its resale valueF) C) and E)
G) C) and D) C

Question 15

If the CPI is 160 one year and 175 the next, the annual rate of inflation as measured by the CPI is approximately

Accepted Answer

A)  4.5 percent
B)  8.6 percent
C)  9.4 percent
D)  15 percent
E)  175 percentF) B) and C)
G) B) and D)

Question 16

If a firm hires labor for $4,000, pays rent of $1,500, buys raw materials for $6,000, earns profits of $500, and sells its output for $14,000, the firm's value added is

Accepted Answer

A)  $12,000
B)  $8,000
C)  $6,000
D)  $2,000
E)  $500F) A) and B)
G) B) and D)

Question 17

Suppose that the economy is in equilibrium with the government budget in deficit and with exports greater than imports. According to the circular flow model,

Accepted Answer

A)  saving must exceed investment
B)  saving must equal investment
C)  saving must be less than investment
D)  saving could be equal to or less than investment
E)  it is impossible to determine anything about saving and investment using the given informationF) C) and E)
G) All of the above

Question 18

If exports total $6.5 billion and imports total $8.0 billion in a year, then

Accepted Answer

A)  together imports and exports add $1.5 billion to GDP
B)  together exports and imports add $6.5 billion to GDP
C)  together exports and imports subtract $1.5 billion from GDP
D)  together exports and imports subtract $8.0 billion from GDP
E)  together exports and imports add nothing to GDPF) A) and C)
G) B) and C) C

Question 19

In the resource market,

Accepted Answer

A)  businesses borrow money to buy the capital resources they need
B)  businesses sell services to the households
C)  firms provide the resources to the households
D)  households sell the resources to firms in return for factor payments
E)  resources flow from the business sector to the household sectorF) C) and E)
G) All of the above

Question 20

Which of the following would not be included in the measurement of GDP?

Accepted Answer

A)  the spark plugs you bought to tune up your car at home
B)  the government hiring a public relations consultant
C)  any improvements in product or service quality not reflected in a higher price
D)  winning a brand new Chevy truck in a contest
E)  sales of U.S. beef to ScotlandF) B) and D)
G) C) and E)

Exam 7: Tracking the Us Economy

Which of the following is not true about Gross Domestic Product?

Correct AnswerverifiedShow Answer

Which of the following is an injection into the circular flow?

Correct AnswerverifiedShow Answer

Which of the following is a leakage from the circular flow?

Correct AnswerverifiedShow Answer

A farmer grows wheat and sells it to a bakery for $5. The bakery bakes the wheat into bread, which it sells to a distributor for $20. The distributor sells the bread to a supermarket for $30, which sells the bread to customers for $50. Which of the following is true?

Correct AnswerverifiedShow Answer

Aggregate income is defined as

Correct AnswerverifiedC

The U.S. Department of Commerce has been developing so called "green accounting" to

Correct AnswerverifiedShow Answer

Real GDP is measured in

Correct AnswerverifiedShow Answer

Which of the following is true about the consumer price index (CPI) and the GDP price index?

Correct AnswerverifiedShow Answer

Which of the following would not increase U.S. GDP?

Correct AnswerverifiedShow Answer

Chain-weighted indexes have less bias compared to fixed-weight indexes.

Correct AnswerverifiedShow Answer

If the CPI overstated inflation by 1 percent per year, then the average real wage, instead of dropping by 2 percent in the last two decades, actually increased by about

Correct AnswerverifiedShow Answer

GDP is not a perfect measure of material well-being because it ignores

Correct AnswerverifiedShow Answer

The gross domestic product does capture changes in the

Correct AnswerverifiedShow Answer

Depreciation refers to a decrease in the value of a durable good caused by

Correct AnswerverifiedC

If the CPI is 160 one year and 175 the next, the annual rate of inflation as measured by the CPI is approximately

Correct AnswerverifiedShow Answer

If a firm hires labor for $4,000, pays rent of $1,500, buys raw materials for $6,000, earns profits of $500, and sells its output for $14,000, the firm's value added is

Correct AnswerverifiedShow Answer

Suppose that the economy is in equilibrium with the government budget in deficit and with exports greater than imports. According to the circular flow model,

Correct AnswerverifiedShow Answer

If exports total $6.5 billion and imports total $8.0 billion in a year, then

Correct AnswerverifiedC

In the resource market,

Correct AnswerverifiedShow Answer

Which of the following would not be included in the measurement of GDP?

Correct AnswerverifiedShow Answer

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C

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C

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C

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