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.
Every penny spent on a good or service must end up as someone's income.
B.
People tend to spend all of their income on goods and services.
C.
Taxes on the production of goods and services are determined according to individual income.
D.
Domestic expenditures on imports generally equal foreign expenditures on U.S. exports.
A.
Every penny spent on a good or service must end up as someone's income.
B.
People tend to spend all of their income on goods and services.
C.
Taxes on the production of goods and services are determined according to individual income.
D.
Domestic expenditures on imports generally equal foreign expenditures on U.S. exports.
answer
A.
Every penny spent on a good or service must end up as someone's income.
Every penny spent on a good or service must end up as someone's income.
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.
Larger: The value of all goods and services sold would include intermediate goods.
B.
Smaller: Measured GDP includes the values of every good and service sold AND the market value of all final goods.
C.
Larger: Measured GDP includes quantities of goods and services, not the values of goods and services.
D.
Equal: Measured GDP is calculated by adding the values of every good and service sold during the year.
A.
Larger: The value of all goods and services sold would include intermediate goods.
B.
Smaller: Measured GDP includes the values of every good and service sold AND the market value of all final goods.
C.
Larger: Measured GDP includes quantities of goods and services, not the values of goods and services.
D.
Equal: Measured GDP is calculated by adding the values of every good and service sold during the year.
answer
A.
Larger: The value of all goods and services sold would include intermediate goods.
Larger: The value of all goods and services sold would include intermediate goods.
question
What are the four major components of expenditures in GDP?
A.
Consumption, Intermediate Goods, Government Purchases, and New Expenditures
B.
Consumption, Intermediate Goods, Goods and Services, and Net Exports
C.
Consumption, Investment, Government Purchases, and Non-Durable Expenditures
D.
Consumption, Investment, Government Purchases, and Net Exports
A.
Consumption, Intermediate Goods, Government Purchases, and New Expenditures
B.
Consumption, Intermediate Goods, Goods and Services, and Net Exports
C.
Consumption, Investment, Government Purchases, and Non-Durable Expenditures
D.
Consumption, Investment, Government Purchases, and Net Exports
answer
D.
Consumption, Investment, Government Purchases, and Net Exports
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.
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.
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 each of the following transactions represents the purchase of a final good.
1. The purchase of cotton fabric from a textile mill by a clothing company.
2. The purchase of a new fleet of police cars by the local government.
3. The purchase of French wine by a U.S. consumer.
4. The purchase of a new machine tool by the Ford Motor Company.
1. The purchase of cotton fabric from a textile mill by a clothing company.
2. The purchase of a new fleet of police cars by the local government.
3. The purchase of French wine by a U.S. consumer.
4. The purchase of a new machine tool by the Ford Motor Company.
answer
1. Is NOT the purchase of a final good
2. Is the purchase of a final good
3. Is the purchase of a final good
4. Is the purchase of a final good
2. Is the purchase of a final good
3. Is the purchase of a final good
4. Is the purchase of a final good
question
An article in the Wall Street Journal states that a "change in ... inventories subtracted 0.57 percentage point from" what would have been the increase in GDP.
Source: Eric Morath And Ben Leubsdorf, "GDP Slows to Crawl in First Quarter, Up 0.1%," Wall Street Journal, April 30, 2014.
For this result to occur, the change in inventories would have to have been
A.
a decrease because this would reduce investment and GDP.
B.
an increase because this would increase investment and lower GDP.
C.
a decrease because this would reduce consumption and GDP.
D.
an increase because this would be more than offset by less business fixed investment and GDP would fall.
Source: Eric Morath And Ben Leubsdorf, "GDP Slows to Crawl in First Quarter, Up 0.1%," Wall Street Journal, April 30, 2014.
For this result to occur, the change in inventories would have to have been
A.
a decrease because this would reduce investment and GDP.
B.
an increase because this would increase investment and lower GDP.
C.
a decrease because this would reduce consumption and GDP.
D.
an increase because this would be more than offset by less business fixed investment and GDP would fall.
answer
A.
a decrease because this would reduce investment and GDP.
a decrease because this would reduce investment and GDP.
question
Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company.
1. You purchase a new Ford Escape Hybrid from a Ford dealer.
2. You purchase a 2013 (preowned) Ford Escape Hybrid from a friend.
3. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana.
4. Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China.
5. Ford purchases new machine tools to use in its Missouri Escape factory.
6. The state of Missouri builds a new highway to help improve access to the Ford Escape plant.
1. You purchase a new Ford Escape Hybrid from a Ford dealer.
2. You purchase a 2013 (preowned) Ford Escape Hybrid from a friend.
3. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana.
4. Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China.
5. Ford purchases new machine tools to use in its Missouri Escape factory.
6. The state of Missouri builds a new highway to help improve access to the Ford Escape plant.
answer
1. Consumption Expenditure
2. NOT included in GDP calculation
3. NOT included in GDP calculation
4. Net Export Expenditure
5. Investment Expenditure
6. Government Expenditure
2. NOT included in GDP calculation
3. NOT included in GDP calculation
4. Net Export Expenditure
5. Investment Expenditure
6. Government Expenditure
question
Suppose a house is built and sold in the year 2008. If the house is resold in the year 2019, is the value of the house included in Gross Domestic Product (GDP) for 2019?
A.
Yes. The value of the house is included in Gross Private Domestic Investment for 2019.
B.
Yes. The value of the house is included in Personal Consumption Expenditures for 2019.
C.
No. GDP for 2019 includes only the market value of final goods. A house resold in 2019 is an intermediate good.
D.
No. GDP for 2019 includes only production that occurs during 2019.
A.
Yes. The value of the house is included in Gross Private Domestic Investment for 2019.
B.
Yes. The value of the house is included in Personal Consumption Expenditures for 2019.
C.
No. GDP for 2019 includes only the market value of final goods. A house resold in 2019 is an intermediate good.
D.
No. GDP for 2019 includes only production that occurs during 2019.
answer
D.
No. GDP for 2019 includes only production that occurs during 2019.
No. GDP for 2019 includes only production that occurs during 2019.
question
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2019?
A.
No. GDP for 2019 includes only the market value of final goods. Real estate services are not final goods.
B.
Yes. Real estate services are considered Gross Private Domestic Investment.
C.
Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
D.
No. The value of the house is not included in GDP for 2019. Therefore, real estate services are not included either.
A.
No. GDP for 2019 includes only the market value of final goods. Real estate services are not final goods.
B.
Yes. Real estate services are considered Gross Private Domestic Investment.
C.
Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
D.
No. The value of the house is not included in GDP for 2019. Therefore, real estate services are not included either.
answer
C.
Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
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.
Disagree: While GDP will be low in this case, it is the result of a decrease in consumer expenditure on stocks, not investment spending.
B.
Agree: GDP = C + I + G + NX. Therefore, as "I" (Investment) decreases, GDP decreases.
C.
Agree: When investment is low, people must have less money to spend. Therefore, GDP decreases.
D.
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
"In years when people buy few shares of stock, investment will be low and, therefore, so will gross domestic product (GDP)."
A.
Disagree: While GDP will be low in this case, it is the result of a decrease in consumer expenditure on stocks, not investment spending.
B.
Agree: GDP = C + I + G + NX. Therefore, as "I" (Investment) decreases, GDP decreases.
C.
Agree: When investment is low, people must have less money to spend. Therefore, GDP decreases.
D.
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
answer
D.
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
question
According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine."
Source: David Kestenbaum, "Lady Gaga Writing a New Song Is Like a Factory Investing in a New Machine," www.npr.org, April 25, 2013.
Which of the following statements is correct?
A.
Working on a record album in a recording studio results in more investment in compact disk factories.
B.
Song development time is investment because it involves the use of equipment and therefore is an investment
C.
Working on a record album in a recording studio is a marginal investment that cannot really be measured.
D.
Song development time produces songs, similar to investment in a factory produces physical goods.
Source: David Kestenbaum, "Lady Gaga Writing a New Song Is Like a Factory Investing in a New Machine," www.npr.org, April 25, 2013.
Which of the following statements is correct?
A.
Working on a record album in a recording studio results in more investment in compact disk factories.
B.
Song development time is investment because it involves the use of equipment and therefore is an investment
C.
Working on a record album in a recording studio is a marginal investment that cannot really be measured.
D.
Song development time produces songs, similar to investment in a factory produces physical goods.
answer
D.
Song development time produces songs, similar to investment in a factory produces physical goods.
Song development time produces songs, similar to investment in a factory produces physical goods.
question
What are the four categories of income?
A.
Wages, Interest, Rent, and Profit.
B.
Wages, Salaries, Interest, and Dividends.
C.
Labor, Capital, Natural Resources, and Entrepreneurship.
D.
Consumption, Investment, Government Purchases, and Net Exports.
A.
Wages, Interest, Rent, and Profit.
B.
Wages, Salaries, Interest, and Dividends.
C.
Labor, Capital, Natural Resources, and Entrepreneurship.
D.
Consumption, Investment, Government Purchases, and Net Exports.
answer
A.
Wages, Interest, Rent, and Profit.
Wages, Interest, Rent, and Profit.
question
The circular-flow diagram shows that ________ should equal ________.
A.
consumption; total expenditure
B.
taxes plus savings; net exports
C.
total expenditure; total income
D.
investment; government expenditures
A.
consumption; total expenditure
B.
taxes plus savings; net exports
C.
total expenditure; total income
D.
investment; government expenditures
answer
C.
total expenditure; total income
total expenditure; total income
question
The circular-flow diagram shows that all sources of income are owned by
A.
firms and government.
B.
corporations.
C.
landlords and foreigners.
D.
households.
A.
firms and government.
B.
corporations.
C.
landlords and foreigners.
D.
households.
answer
D.
households.
households.
question
When examining the circular-flow diagram,
A.
government expenditures must equal the amount of taxes collected.
B.
households can use some of their income to purchase goods from foreigners as imports.
C.
foreign households need to borrow in order to purchase goods in the form of exports.
D.
households are the only group in the economy that can save or borrow.
A.
government expenditures must equal the amount of taxes collected.
B.
households can use some of their income to purchase goods from foreigners as imports.
C.
foreign households need to borrow in order to purchase goods in the form of exports.
D.
households are the only group in the economy that can save or borrow.
answer
B.
households can use some of their income to purchase goods from foreigners as imports.
households can use some of their income to purchase goods from foreigners as imports.
question
One major component of GDP that can be negative is
A.
net exports.
B.
consumption.
C.
investment.
D.
government expenditures
A.
net exports.
B.
consumption.
C.
investment.
D.
government expenditures
answer
A.
net exports.
net exports.
question
Which of the following statements about the consumption component of GDP is not correct?
A.
Consumption as a fraction of total GDP in the U.S. is larger compared to all other high income nations in the world.
B.
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
C.
Since 1960, the consumption component of GDP has generally increased as a fraction of GDP.
D.
The consumption component of GDP in the U.S. is greater than all three of the other components (government, investment, and net exports) combined.
A.
Consumption as a fraction of total GDP in the U.S. is larger compared to all other high income nations in the world.
B.
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
C.
Since 1960, the consumption component of GDP has generally increased as a fraction of GDP.
D.
The consumption component of GDP in the U.S. is greater than all three of the other components (government, investment, and net exports) combined.
answer
B.
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
question
Indicate whether each of the following is a final good, an intermediate good, or neither.
1. Coffee beans purchased by a coffee shop
2. One share of Google stock
3. A new pick-up truck purchased by a consumer
4. A new home purchased by a family
1. Coffee beans purchased by a coffee shop
2. One share of Google stock
3. A new pick-up truck purchased by a consumer
4. A new home purchased by a family
answer
1. Intermediate good
2. Neither
3. Final good
4. Final good
2. Neither
3. Final good
4. Final good
question
Gross Domestic Product (GDP) is
A.
the market value of all final goods and services produced in a country during a period of time.
B.
the amount of income generated from wages, rents, and profits in a country during a period of time.
C.
the quantity of all final goods and services produced in a country during a period of time.
D.
the value of all expenditures made by households and firms in a country during a period of time.
A.
the market value of all final goods and services produced in a country during a period of time.
B.
the amount of income generated from wages, rents, and profits in a country during a period of time.
C.
the quantity of all final goods and services produced in a country during a period of time.
D.
the value of all expenditures made by households and firms in a country during a period of time.
answer
A.
the market value of all final goods and services produced in a country during a period of time.
the market value of all final goods and services produced in a country during a period of time.
question
Inventories are part of investment and therefore included in GDP because
A.
the sale of shares of stock are not included in any other component, inventories allow GDP to capture this spending.
B.
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed.
C.
the value added by production goes into goods but not production and since goods start in inventory, that component needs to be computed.
D.
inventories represent the amount of factors of production firms have used to produce goods.
A.
the sale of shares of stock are not included in any other component, inventories allow GDP to capture this spending.
B.
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed.
C.
the value added by production goes into goods but not production and since goods start in inventory, that component needs to be computed.
D.
inventories represent the amount of factors of production firms have used to produce goods.
answer
B.
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed.
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed.
question
A recession occurs when an economy experiences a period in which there is
A.
a negative amount of net exports.
B.
a decrease in the inflation rate.
C.
an increase in total employment.
D.
a decrease in total production.
A.
a negative amount of net exports.
B.
a decrease in the inflation rate.
C.
an increase in total employment.
D.
a decrease in total production.
answer
D.
a decrease in total production.
a decrease in total production.
question
The business cycle exists because
A.
there are changes in the level of government expenditures, sometimes they increase and sometimes they decrease.
B.
exports and imports do not always increase and decrease at the same rate which causes cyclical movements in net exports.
C.
total production experiences periods of increases and periods of decreases.
D.
the price level tends to increase over some periods and decrease over others.
A.
there are changes in the level of government expenditures, sometimes they increase and sometimes they decrease.
B.
exports and imports do not always increase and decrease at the same rate which causes cyclical movements in net exports.
C.
total production experiences periods of increases and periods of decreases.
D.
the price level tends to increase over some periods and decrease over others.
answer
C.
total production experiences periods of increases and periods of decreases.
total production experiences periods of increases and periods of decreases.
question
Transfer payments are not included in GDP calculations because
A.
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
B.
transfer payments do not include movements of income between countries so they should only be included in foreign country GDPs.
C.
transfer payments come from taxes and government expenditures so they are already included in government purchases.
D.
None of the above because transfer payments are included in GDP.
A.
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
B.
transfer payments do not include movements of income between countries so they should only be included in foreign country GDPs.
C.
transfer payments come from taxes and government expenditures so they are already included in government purchases.
D.
None of the above because transfer payments are included in GDP.
answer
A.
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
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.
the value of total income equals the value of GDP, but does not equal the value of expenditures.
C.
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.
D.
the total value of expenditures equals the value of GDP, but does not equal the value of income.
A.
personal consumption expenditures are equal to the value of GDP.
B.
the value of total income equals the value of GDP, but does not equal the value of expenditures.
C.
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.
D.
the total value of expenditures equals the value of GDP, but does not equal the value of income.
answer
C.
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.
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
In the circular-flow diagram, who supplies factors of production in exchange for income?
A.
firms
B.
households
C.
the government
D.
All of the above.
A.
firms
B.
households
C.
the government
D.
All of the above.
answer
B.
households
households
question
Which of the following is included in the economist's definition of investment?
A.
the purchase of a share of stock
B.
the purchase of a rare coin or a deposit in a savings account
C.
the purchase of new machines, factories, or houses
D.
All of the above.
A.
the purchase of a share of stock
B.
the purchase of a rare coin or a deposit in a savings account
C.
the purchase of new machines, factories, or houses
D.
All of the above.
answer
C.
the purchase of new machines, factories, or houses
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 governments only on national security, social welfare, and other national programs
B.
spending by the federal government and some state governments, but not local governments
C.
spending by the federal government only
D.
spending by federal, state, and local governments
A.
spending by governments only on national security, social welfare, and other national programs
B.
spending by the federal government and some state governments, but not local governments
C.
spending by the federal government only
D.
spending by federal, state, and local governments
answer
D.
spending by federal, state, and local governments
spending by federal, state, and local governments
question
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
A.
profit.
B.
fixed investment.
C.
producer surplus.
D.
value added.
A.
profit.
B.
fixed investment.
C.
producer surplus.
D.
value added.
answer
D.
value added.
value added.
question
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
A.
GDP is not adjusted for pollution and it does not account for unequal income distribution.
B.
The value of leisure is not included in GDP.
C.
GDP is not adjusted for crime or other social problems.
D.
All of the above.
E.
A and C only.
A.
GDP is not adjusted for pollution and it does not account for unequal income distribution.
B.
The value of leisure is not included in GDP.
C.
GDP is not adjusted for crime or other social problems.
D.
All of the above.
E.
A and C only.
answer
D.
All of the above.
All of the above.
question
Which of the following are likely to increase the measured level of GDP and which are likely to reduce it?
1. When the number of people working outside the home decreases, the measured level of GDP
2. When there is a sharp decrease in the crime rate, the measured level of GDP
3. If lower tax rates cause fewer people to hide the income they earn, the measured GDP
1. When the number of people working outside the home decreases, the measured level of GDP
2. When there is a sharp decrease in the crime rate, the measured level of GDP
3. If lower tax rates cause fewer people to hide the income they earn, the measured GDP
answer
1. Decreases
2. may increase or decrease
3. Increases
2. may increase or decrease
3. Increases
question
Real GDP per capita is often used as a measure of general well-being. While increases in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being?
A.
The costs of pollution are not included.
B.
The value of leisure is not included.
C.
GDP does not include crime rates or income distribution.
D.
All of the above.
A.
The costs of pollution are not included.
B.
The value of leisure is not included.
C.
GDP does not include crime rates or income distribution.
D.
All of the above.
answer
D.
All of the above.
All of the above.
question
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
A.
GDP is a measure of production in quantity terms.
B.
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
C.
Nominal GDP separates increases in GDP as a result of price changes from increases in GDP as a result of quantity changes.
D.
All of the above
E.
A and B only
A.
GDP is a measure of production in quantity terms.
B.
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
C.
Nominal GDP separates increases in GDP as a result of price changes from increases in GDP as a result of quantity changes.
D.
All of the above
E.
A and B only
answer
B.
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
question
How does real GDP deal with the problem inflation causes with nominal GDP?
A.
Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years.
B.
Real GDP separates price changes from quantity changes.
C.
By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced.
D.
All of the above.
E.
A and C only.
A.
Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years.
B.
Real GDP separates price changes from quantity changes.
C.
By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced.
D.
All of the above.
E.
A and C only.
answer
D.
All of the above.
All of the above.
question
Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP?
A.
RGDP = NGDP because prices are stable.
B.
RGDP < NGDP because prices are rising.
C.
RGDP > NGDP because prices are falling.
D.
The relationship is uncertain without more information on prices.
A.
RGDP = NGDP because prices are stable.
B.
RGDP < NGDP because prices are rising.
C.
RGDP > NGDP because prices are falling.
D.
The relationship is uncertain without more information on prices.
answer
B.
RGDP < NGDP because prices are rising.
RGDP < NGDP because prices are rising.
question
Real GDP is
A.
the value of goods and services evaluated at base year prices.
B.
equal to the value of nominal GDP in every year except for the base year.
C.
the value of goods and services evaluated at current year prices.
D.
a measure of output that was replaced by nominal GDP some time ago.
A.
the value of goods and services evaluated at base year prices.
B.
equal to the value of nominal GDP in every year except for the base year.
C.
the value of goods and services evaluated at current year prices.
D.
a measure of output that was replaced by nominal GDP some time ago.
answer
A.
the value of goods and services evaluated at base year prices.
the value of goods and services evaluated at base year prices.
question
Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates
A.
nominal GDP using chain weights.
B.
real GDP and nominal GDP using only base-year prices.
C.
real GDP using the prices in the current year.
D.
real GDP using chain weights.
A.
nominal GDP using chain weights.
B.
real GDP and nominal GDP using only base-year prices.
C.
real GDP using the prices in the current year.
D.
real GDP using chain weights.
answer
D.
real GDP using chain weights.
real GDP using chain weights.
question
If the GDP deflator in 2012 has a value of 98.0, then
A.
the inflation rate in 2012 is -2 percent.
B.
prices have increased 9.8 percent between the base year and 2012.
C.
prices have decreased 2 percent between the base year and 2012.
D.
the inflation rate in 2012 is 2 percent.
A.
the inflation rate in 2012 is -2 percent.
B.
prices have increased 9.8 percent between the base year and 2012.
C.
prices have decreased 2 percent between the base year and 2012.
D.
the inflation rate in 2012 is 2 percent.
answer
C.
prices have decreased 2 percent between the base year and 2012.
prices have decreased 2 percent between the base year and 2012.
question
U.S. Gross National Product (GNP) differs from U.S. Gross Domestic Product (GDP) in which of the following ways? (Mark all that apply.)
A.
GNP is the value of final goods and services produced by residents of the U.S.
B.
GNP is equal to GDP minus depreciation.
C.
GNP considers production that occurs outside the U.S.
D.
GNP is the value of final goods and services produced within the U.S.
A.
GNP is the value of final goods and services produced by residents of the U.S.
B.
GNP is equal to GDP minus depreciation.
C.
GNP considers production that occurs outside the U.S.
D.
GNP is the value of final goods and services produced within the U.S.
answer
A & C
question
In the U.S., gross domestic product (GDP) and gross national product (GNP) are close in value. Under what circumstances would GNP be much larger than GDP?
A. Few foreign firms maintain facilities in the U.S. while many U.S. firms are currently operating abroad.
B. Few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S.
C. Many U.S. citizens currently work in foreign countries while few foreign citizens currently work in the U.S.
D. All of the above would push GNP above GDP.
A. Few foreign firms maintain facilities in the U.S. while many U.S. firms are currently operating abroad.
B. Few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S.
C. Many U.S. citizens currently work in foreign countries while few foreign citizens currently work in the U.S.
D. All of the above would push GNP above GDP.
answer
D. All of the above would push GNP above GDP.
question
Suppose the amount the federal government collects in personal income taxes decreases, while the level of GDP remains the same. What will happen to the values of national income, personal income, and disposable personal income?
1. National income will
.
2. Personal income will
.
3. Disposable personal income will
1. National income will
.
2. Personal income will
.
3. Disposable personal income will
answer
1. Remain the same
2. Remain the same
3. Increase
2. Remain the same
3. Increase
question
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.
Disposable personal income
C.
Net national product
D.
Personal income
A.
Gross national product
B.
Disposable personal income
C.
Net national product
D.
Personal income
answer
B.
Disposable personal income
Disposable personal income
question
Indicate whether the following statement is correct or incorrect.
"Corporate profits are much too high: Most corporations make profits equal to 50 percent of the price of the products they sell."
A.
Incorrect: Corporate profits are not nearly high enough. If corporate profits were higher, GDP and total income would increase.
B.
Correct: The largest component of gross domestic income is corporate profit, which is about twice as large as wages.
C.
Correct: Corporations aim for a 50 percent profit margin.
D.
Incorrect: The largest component of gross domestic income is wages, which are about three times as large as profit.
"Corporate profits are much too high: Most corporations make profits equal to 50 percent of the price of the products they sell."
A.
Incorrect: Corporate profits are not nearly high enough. If corporate profits were higher, GDP and total income would increase.
B.
Correct: The largest component of gross domestic income is corporate profit, which is about twice as large as wages.
C.
Correct: Corporations aim for a 50 percent profit margin.
D.
Incorrect: The largest component of gross domestic income is wages, which are about three times as large as profit.
answer
D.
Incorrect: The largest component of gross domestic income is wages, which are about three times as large as profit.
Incorrect: The largest component of gross domestic income is wages, which are about three times as large as profit.
question
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 a Canadian firm that operates in Montana.
C.
Production from an Hungarian citizen who works in Denver, CO.
D.
All of the above are included in the GNP of the U.S.
A.
Production from a U.S. firm that operates in Mexico.
B.
Production from a Canadian firm that operates in Montana.
C.
Production from an Hungarian citizen who works in Denver, CO.
D.
All of the above are included in the GNP of the U.S.
answer
A.
Production from a U.S. firm that operates in Mexico.
Production from a U.S. firm that operates in Mexico.
question
The largest component of gross domestic income is
A.
profits.
B.
interest.
C.
rent.
D.
wages.
A.
profits.
B.
interest.
C.
rent.
D.
wages.
answer
D.
wages.
wages.
question
To calculate personal income from national income, which of the following must the BEA do?
A.
add government transfer payments
B.
add profits
C.
add corporate retained earnings
D.
All of the above.
A.
add government transfer payments
B.
add profits
C.
add corporate retained earnings
D.
All of the above.
answer
A.
add government transfer payments
add government transfer payments
question
All of the following are problems in measuring the unemployment rate except that
A.
part-time workers are included as employed.
B.
discouraged workers are not included in the labor force.
C.
people on active military service are included as unemployed.
D.
lack of verification of people's responses in the household survey.
A.
part-time workers are included as employed.
B.
discouraged workers are not included in the labor force.
C.
people on active military service are included as unemployed.
D.
lack of verification of people's responses in the household survey.
answer
C.
people on active military service are included as unemployed.
people on active military service are included as unemployed.
question
Which groups tend to have above-average unemployment rates, and which groups tend to have below-average unemployment rates?
Consider the following choices. Which one is NOT accurate?
A.
White adults have below-average unemployment rates.
B.
Black adults have above-average unemployment rates.
C.
Black teenagers as a group have lower unemployment rates than white teenagers.
D.
Generally, teenagers as a group have higher unemployment rates than adults.
Consider the following choices. Which one is NOT accurate?
A.
White adults have below-average unemployment rates.
B.
Black adults have above-average unemployment rates.
C.
Black teenagers as a group have lower unemployment rates than white teenagers.
D.
Generally, teenagers as a group have higher unemployment rates than adults.
answer
C.
Black teenagers as a group have lower unemployment rates than white teenagers.
Black teenagers as a group have lower unemployment rates than white teenagers.
question
Which one of the following depicts an accurate description of the household survey and the establishment survey?
A.
The household survey conducts surveys of small companies and measures the employment and the unemployment rate whereas the establishment survey interviews big establishments and measures the unemployment rate.
B.
The household survey interviews households and measures the employment rate whereas the establishment survey interviews self-employed people and measures the unemployment rate.
C.
The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy.
D.
The household survey interviews retired individuals and measures the unemployment rate whereas the establishment survey interviews working population and measures the employment rate.
A.
The household survey conducts surveys of small companies and measures the employment and the unemployment rate whereas the establishment survey interviews big establishments and measures the unemployment rate.
B.
The household survey interviews households and measures the employment rate whereas the establishment survey interviews self-employed people and measures the unemployment rate.
C.
The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy.
D.
The household survey interviews retired individuals and measures the unemployment rate whereas the establishment survey interviews working population and measures the employment rate.
answer
C.
The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy.
The household survey interviews households and collects data that is used to measure the unemployment rate whereas the establishment survey interviews businesses and measures total employment in the economy.
question
Many economists prefer
A.
the establishment survey because it can predict future stock prices of the companies it surveys.
B.
the establishment survey because it is determined by actual payroll records rather than unverified answers.
C.
the household survey because it gives data on unemployed and self-employed individuals.
D.
the household survey because it provides a large sample of the population and so is more inclusive.
A.
the establishment survey because it can predict future stock prices of the companies it surveys.
B.
the establishment survey because it is determined by actual payroll records rather than unverified answers.
C.
the household survey because it gives data on unemployed and self-employed individuals.
D.
the household survey because it provides a large sample of the population and so is more inclusive.
answer
B.
the establishment survey because it is determined by actual payroll records rather than unverified answers.
the establishment survey because it is determined by actual payroll records rather than unverified answers.
question
Currently, the Bureau of Labor Statistics does not include homemakers in its employment and labor force totals. What would happen to the unemployment rate and the labor force participation rate if homemakers were included in these numbers?
A.
Both the unemployment rate and the labor force participation rate would decrease.
B.
Both the unemployment rate and the labor force participation rate would increase.
C.
The unemployment rate would increase and the labor force participation rate would decrease.
D.
The unemployment rate would decrease and the labor force participation rate would increase.
A.
Both the unemployment rate and the labor force participation rate would decrease.
B.
Both the unemployment rate and the labor force participation rate would increase.
C.
The unemployment rate would increase and the labor force participation rate would decrease.
D.
The unemployment rate would decrease and the labor force participation rate would increase.
answer
D.
The unemployment rate would decrease and the labor force participation rate would increase.
The unemployment rate would decrease and the labor force participation rate would increase.
question
The BLS uses the establishment survey to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage. (Multiple)
A.
It includes complete information about unemployment.
B.
It is based on company payroll and not on unverifiable answers.
C.
It does not include information about self-employed people.
D.
It is based on unverifiable, self-reported survey responses.
A.
It includes complete information about unemployment.
B.
It is based on company payroll and not on unverifiable answers.
C.
It does not include information about self-employed people.
D.
It is based on unverifiable, self-reported survey responses.
answer
B & C
question
Since 1948, which of the following best describes the trend in the labor force participation rate?
A.
It is increasing for men and decreasing for women.
B.
It is decreasing for both men and women.
C.
It is increasing for both men and women.
D.
It is decreasing for men and increasing for women.
A.
It is increasing for men and decreasing for women.
B.
It is decreasing for both men and women.
C.
It is increasing for both men and women.
D.
It is decreasing for men and increasing for women.
answer
D.
It is decreasing for men and increasing for women.
It is decreasing for men and increasing for women.
question
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
A.
It fails to account for illegal activities.
B.
It does not account for inaccurate responses to the Current Population Survey.
C.
Discouraged workers are not considered unemployed.
D.
Underemployed people are considered employed.
E.
All of the above.
A.
It fails to account for illegal activities.
B.
It does not account for inaccurate responses to the Current Population Survey.
C.
Discouraged workers are not considered unemployed.
D.
Underemployed people are considered employed.
E.
All of the above.
answer
E.
All of the above.
All of the above.
question
The unemployment rate
A.
is the amount of people in the population that are not working.
B.
shows the percentage of the labor force that is considered unemployed.
C.
is the amount of the labor force that is not working.
D.
shows the percentage of the population that is considered unemployed.
A.
is the amount of people in the population that are not working.
B.
shows the percentage of the labor force that is considered unemployed.
C.
is the amount of the labor force that is not working.
D.
shows the percentage of the population that is considered unemployed.
answer
B.
shows the percentage of the labor force that is considered unemployed.
shows the percentage of the labor force that is considered unemployed.
question
How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both (1) discouraged workers and (2) people who work part-time but would prefer to work full-time?
A.
The unemployment rate would increase.
B.
The unemployment rate would remain the same because those people are already counted as unemployed.
C.
The unemployment rate would decrease.
D.
The annual unemployment rate would have been close to 50 percent in the last decade.
A.
The unemployment rate would increase.
B.
The unemployment rate would remain the same because those people are already counted as unemployed.
C.
The unemployment rate would decrease.
D.
The annual unemployment rate would have been close to 50 percent in the last decade.
answer
A.
The unemployment rate would increase.
The unemployment rate would increase.
question
The (FOMC) Federal Open Market Committee
A.
determines the target federal funds rate and the direction of open market operation policies.
B.
includes the Board of Governors and the presidents of the 12 Federal Reserve regional banks (though not all are voting members).
C.
makes decisions that are voted on by all 7 members of the Board of Governors but only 5 of the 12 regional bank presidents.
D.
All of the above.
E.
A and B only.
A.
determines the target federal funds rate and the direction of open market operation policies.
B.
includes the Board of Governors and the presidents of the 12 Federal Reserve regional banks (though not all are voting members).
C.
makes decisions that are voted on by all 7 members of the Board of Governors but only 5 of the 12 regional bank presidents.
D.
All of the above.
E.
A and B only.
answer
D.
All of the above.
All of the above.
question
The Federal Reserve Bank of New York is always a voting member of the FOMC because
A.
it carries out the policy directives of the FOMC.
B.
it always has an employee as a member of the Board of Governors.
C.
it is the largest of the Federal Reserve districts.
D.
it has the most political affiliations of the Federal Reserve districts.
A.
it carries out the policy directives of the FOMC.
B.
it always has an employee as a member of the Board of Governors.
C.
it is the largest of the Federal Reserve districts.
D.
it has the most political affiliations of the Federal Reserve districts.
answer
A.
it carries out the policy directives of the FOMC.
it carries out the policy directives of the FOMC.
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