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155
MEASURING GDP
AND ECONOMIC
GROWTH*
- This is Chapter 21 in Economics.
Gross Domestic Product
Topic: GDP Skill: Recognition
- Gross domestic product is the total ____ pro- duced within a country in a given time period. A) market value of all final and intermediate goods and services B) market value of all final and intermediate goods and services plus investment and depreciation C) amount of final and intermediate goods and ser- vices D) market value of all final goods and services Answer: D
Topic: Circular Flow Skill: Conceptual
- The circular flow diagram shows A) how nominal GDP is distinct from real GDP. B) how the prices of factors are determined. C) the effects of inflation in a simple economy. D) the flows between different sectors of the econ- omy. Answer: D
Topic: Circular Flow Skill: Conceptual
- The circular flow diagram indicates that A) households sell the services of factors of produc- tion to firms. B) firms buy the services of factors of production from the government. C) households sell goods and services to the gov- ernment. D) firms buy goods and services from households. Answer: A
Topic: Circular Flow Skill: Conceptual
- In the circular flow model of an economy with no government sector and no international trade, households A) receive income from buyers of goods and ser- vices. B) receive income from the sale of factors in the goods markets. C) pay firms for the use of their factors. D) receive income from producers for the use of factors in the factor markets. Answer: D
Topic: Circular Flow, Aggregate Expenditure Skill: Conceptual
- In the circular flow diagram, aggregate expendi- ture includes the sum of A) saving and investment. B) consumption and investment. C) consumption, investment, and saving. D) income and saving. Answer: B
Topic: Circular Flow, Aggregate Expenditure Skill: Conceptual
- In the circular flow of economic activity A) aggregate expenditure measures the dollar value of purchases of factors. B) aggregate expenditure measures the dollar value of purchases of final goods and services. C) aggregate income measures the dollar value of labor resources only. D) aggregate expenditure is measured as it moves through the financial markets. Answer: B
C h a p t e r
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Topic: Government Budget Deficit Skill: Recognition
- The government’s budget deficit is the excess of government A) purchases of goods and services over its interest payments on the government debt. B) purchases of goods and services over its net taxes. C) net taxes over its purchases of goods and ser- vices. D) interest payments on the government debt over its net taxes. Answer: B
Topic: Rest of the World Sector Skill: Conceptual
- If U.S. imports are less than U.S. exports, the A) rest of the world borrows from the U.S. econ- omy. B) U.S. economy borrows from the rest of the world. C) U.S. government has a budget surplus. D) U.S. government has a budget deficit. Answer: A
Topic: Rest of the World Sector Skill: Conceptual
- If the rest of the world lends to the U.S. econ- omy, A) the U.S. government has a budget surplus. B) the U.S. government has a budget deficit. C) U.S. imports are less than U.S. exports. D) U.S. imports exceed than U.S. exports. Answer: D
Topic: Rest of the World Sector Skill: Conceptual
- When exports from the United States exceed im- ports into the United States, the rest of the world A) borrows from the United States or sells U.S. as- sets. B) lends to the United States or sells U.S. assets. C) borrows from the United States or buys U.S. as- sets. D) lends to the United States or buys U.S. assets. Answer: A
Topic: Rest of the World Sector Skill: Conceptual
- When imports into the United States exceed ex- ports from the United States, the United States A) borrows from the rest of the world or sells for- eign assets. B) lends to the rest of the world or sells foreign as- sets. C) borrows from the rest of the world or buys for- eign assets. D) lends to the rest of the world or buys foreign as- sets. Answer: A
Topic: Expenditure Equals Income Skill: Conceptual
- Which of the following are equal to one another? I. aggregate production II. aggregate expenditure III. aggregate income A) I equals II, but not III. B) I equals III, but not II. C) II equals III, but not I. D) I equals II equals III. Answer: D
Topic: How Investment Is Financed Skill: Recognition
- Investment is financed by which of the following? I. Government spending II. National saving III. Borrowing from the rest of the world A) I, II, and III B) I and II only C) I and III only D) II and III only Answer: D
Topic: National Saving Skill: Recognition
- National saving is defined as the amount of saving by A) businesses. B) households. C) businesses and households. D) businesses and households and the government. Answer: D
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Topic: Flows and Stocks Skill: Recognition
- A feature of a stock variable and a flow variable is that A) a stock is a quantity per unit of time and a flow is a quantity that exists at a point in time. B) a stock is a quantity that exists at a point in time and a flow is a quantity per unit of time. C) a stock only measures the value of goods and services produced in a country during a given time period. D) an example of a stock variable is real GDP and an example of a flow variable is consumption expenditure. Answer: B
Topic: Flows and Stocks Skill: Conceptual
- Which of the following is a stock variable? A) Investment. B) Income. C) Wealth. D) Saving. Answer: C
Topic: Flows and Stocks Skill: Conceptual
- GDP is A) a measure of the amount of government debt. B) investment in the nation’s economy. C) stock. D) flow. Answer: D
Topic: Flows and Stocks Skill: Conceptual
- Which of the following is a flow variable? A) investment. B) capital. C) the amount of money in your savings account. D) the number of CD’s you own. Answer: A
Topic: Flows and Stocks Skill: Conceptual
- Which of the following is NOT a flow variable? A) The number of DVD players sold per month. B) The number of DVDs available at the library. C) Annual spending on DVD rentals. D) The number of DVDs produced per year. Answer: B
Topic: Flows and Stocks Skill: Conceptual
- Which of the following is a flow variable? A) Capital. B) Gross domestic product. C) Wealth. D) The money in your pocket. Answer: B
Topic: Flows and Stocks Skill: Conceptual
- An example of a flow variable is A) capital. B) consumption expenditure by households. C) the machinery owned by a firm. D) the cash held by households. Answer: B
Topic: Flows and Stocks Skill: Conceptual
- Which of the following is a stock variable? A) Capital. B) Consumption expenditure by households. C) Gross investment. D) Depreciation. Answer: A
Topic: Flows and Stocks Skill: Conceptual
- An example of a stock quantity is A) real GDP. B) consumption expenditure by households. C) gross investment. D) wealth. Answer: D
Topic: Wealth and Saving Skill: Recognition
- Which of the following is FALSE about saving? A) Saving adds to wealth. B) Income left after paying taxes can either be con- sumed or saved. C) Saving equals wealth minus consumption ex- penditures. D) Saving is a flow variable. Answer: C
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Topic: Wealth and Saving Skill: Analytical
- At the beginning of the year, your wealth is $10,000. During the year, you have an income of $90,000 and you spend $80,000 on consump- tion. You pay no taxes. Your wealth at the end of the year is A) $20,000.00. B) $0. C) $90,000.00. D) $100,000.00. Answer: A
Topic: Wealth and Saving Skill: Analytical
- At the beginning of the year, your wealth is $10,000. During the year, you have an income of $80,000 and you spend $90,000 on consump- tion. You pay no taxes. Your wealth at the end of the year is A) $20,000.00. B) $0. C) $90,000.00. D) $100,000.00. Answer: B
Topic: Capital and Investment Skill: Recognition
- The term capital, as used in macroeconomics, refers to A) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. B) financial wealth. C) the sum of investment and government pur- chases of goods. D) investment. Answer: A
Topic: Capital and Investment Skill: Recognition
- The term capital, as used in macroeconomics, refers to A) the amount of money that someone can invest in a new venture. B) the amount of money a firm can raise in the stock market. C) manufactured inputs, including inventories, buildings, machinery, etc. D) All of the above answers are correct. Answer: C
Topic: Capital and Investment Skill: Recognition
- The term capital, as used in macroeconomics, includes all of the following except A) inventories. B) equipment. C) buildings. D) a company’s work force. Answer: D
Topic: Capital and Investment Skill: Recognition
- Capital A) includes the plant, equipment, and buildings owned by firms. B) increases when depreciation increases. C) does not include semifinished goods used to produce other goods and services. D) is a flow variable. Answer: A
Topic: Capital and Investment Skill: Recognition
- Depreciation A) does not change the level of capital in the econ- omy. B) is the decrease in the capital stock because of wear and tear. C) is also known as capital consumption. D) Both answers B and C are correct. Answer: D
Topic: Capital and Investment Skill: Recognition
- Investment, as defined in the text, refers to the purchase of A) new capital. B) stocks and bonds. C) durable goods by consumers. D) All of the above answers are correct. Answer: A
Topic: Capital and Investment Skill: Recognition
- Which of the following is not included in the investment component of GDP? A) A household purchases a new washing machine. B) Purchase of new equipment by a business. C) A firm builds a new warehouse. D) A business fails to sell all of its output and there- fore experiences an increase in inventories. Answer: A
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Topic: Capital and Investment Skill: Analytical
- At the beginning of the year, Tom’s Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and pur- chased 3 new machines. Tom’s gross investment for the year totaled A) 1 machine. B) 2 machines. C) 3 machines. D) 6 machines. Answer: C
Topic: Capital and Investment Skill: Analytical
- At the beginning of the year, Tom’s Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and pur- chased 3 new machines. Tom’s capital stock at the end of year equals A) 1 machine. B) 2 machines. C) 3 machines. D) 6 machines. Answer: D
Topic: Net Domestic Product Skill: Recognition
- Depreciation is subtracted from gross domestic product to determine directly A) consumption expenditures plus investment ex- penditures plus government purchases plus net exports. B) disposable income. C) net domestic product. D) national income. Answer: C
Topic: Net Domestic Product Skill: Recognition
- GDP equals net domestic product plus A) transfer payments and business transfers. B) depreciation. C) indirect business taxes and personal taxes. D) retained earnings. Answer: B
Topic: Net Domestic Product Skill: Analytical
- In the nation of Nirvana, depreciation is $22 bil- lion, GDP is $260.4 billion, and national income is $215.2 billion. Net domestic product is A) smaller than national income. B) $215.2 billion. C) $238.4 billion. D) $445.2 billion. Answer: C
Measuring U.S. GDP
Topic: GDP Skill: Recognition
- Which of the following correctly describes GDP? I. GDP is a flow variable. II. GDP is the value of the production of an in- dividual firm’s goods and services. III. GDP can be calculated using the expenditure approach or the income approach. A) I only. B) III only. C) I and III. D) II and III. Answer: C
Topic: Expenditure Approach Skill: Recognition
- GDP can be computed as the sum of A) all sales that have taken place in an economy over a period of time. B) the total expenditures of consumers and business over a period of time. C) the total expenditures of consumption, invest- ment, and government purchases of goods and services over a period of time. D) the total expenditures of consumption, invest- ment, government purchases of goods and ser- vices, and net exports over a period of time. Answer: D
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Topic: Expenditure Approach Skill: Recognition
- GDP using the expenditure approach equals the sum of personal consumption expenditures plus A) gross private investment. B) gross private investment plus government pur- chases of goods and services. C) gross private investment plus government pur- chases of goods and services minus imports of goods and services. D) gross private investment plus government pur- chases of goods and services plus net exports of goods and services. Answer: D
Topic: Expenditure Approach Skill: Recognition
- The expenditure approach measures GDP by adding A) compensation of employees, rental income, cor- porate profits, net interest, and proprietors’ in- come. B) compensation of employees, rental income, cor- porate profits, net interest, proprietors’ income, subsidies paid by the government, indirect taxes paid, and depreciation. C) compensation of employees, rental income, cor- porate profits, net interest, proprietors’ income, indirect taxes paid, and depreciation and sub- tracting subsidies paid by the government. D) consumption expenditure, gross private domes- tic investment, net exports of goods and services, and government purchases of goods and ser- vices. Answer: D
Topic: Expenditure Approach Skill: Recognition
- Which of the following is NOT part of the ex- penditure approach to measuring GDP? A) Gross private domestic investment B) Net exports of goods and services C) Net interest D) Personal consumption expenditures Answer: C
Topic: Expenditure Approach Skill: Recognition
- To measure GDP using the expenditure approach you must collect data on A) inflation. B) exports. C) wages. D) saving. Answer: B
Topic: Expenditure Approach Skill: Recognition
- Aggregate expenditures include all of the follow- ing EXCEPT A) consumption of food. B) purchases of intermediate goods. C) purchases of a piece of capital equipment. D) purchases of guns by the government. Answer: B
Topic: Expenditure Approach Skill: Conceptual
- In the expenditure approach to GDP, the largest component is A) government purchases. B) personal consumption expenditures. C) gross private domestic investment. D) net exports. Answer: B
Topic: Expenditure Approach Skill: Conceptual
- Let C represent consumption expenditure, S sav- ing, I gross private domestic investment, G gov- ernment purchases of goods and services, and NX net exports of goods and services. Then GDP equals A) C + S + G + NX. B) C + S + G – NX. C) C + I + G + NX. D) C + I + G – NX. Answer: C
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Topic: Expenditure Approach, Investment Skill: Conceptual
- An example of “investment” in the national in- come accounts is the purchase of A) a new van by a potter, who packs it with his wares and travels to art shows. B) 100 shares of Canadian stock on the New York Stock Exchange. C) a 100-year-old house that was just put on the protected historic sites list in the year in ques- tion. D) a U.S. government bond. Answer: A
Topic: Expenditure Approach, Investment Skill: Conceptual
- In the national income accounts, the purchase of a new house counts as A) consumption expenditure. B) investment. C) a transfer. D) an addition to inventory. Answer: B
Topic: Expenditure Approach, Investment Skill: Conceptual
- All of the following are included in gross private domestic investment expenditure EXCEPT a A) business’s purchase of a fleet of cars. B) household’s purchase of a new house. C) business’s purchase of another company’s stock. D) a retail store’s purchase of shoes to add to its in- ventory. Answer: C
Topic: Expenditure Approach, Government Purchases Skill: Recognition
- In the national income accounts, government purchases of goods and services refer to those pur- chases made by A) federal and state governments only. B) the federal government only. C) state and local governments only. D) all levels of government. Answer: D
Topic: Expenditure Approach, Government Purchases Skill: Recognition
- In the national income accounts, government purchases of goods and services exclude A) transfer payments. B) state and local government purchases. C) local government purchases but include state government purchases. D) spending on national defense. Answer: A
Topic: The Expenditure Approach, Government Purchases Skill: Recognition
- Which of the following is included in the gov- ernment purchases component of the expenditure approach to GDP? A) State government expenditure on local schools B) Transfer payments C) Changes in inventories D) Taxes Answer: A
Topic: The Expenditure Approach, Government Purchases Skill: Recognition
- Which one of the following transactions in a par- ticular year is included in gross domestic product for that year? A) Social Security payments to retirees B) The government pays a computer services com- pany that assisted in the delivery of Social Secu- rity payments to retirees C) A car is produced in the previous year and re- mains in inventory for the entire year under consideration D) A stay-at-home parent performs housework that the family would otherwise have paid a maid $20,000 a year to perform. Answer: B
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Topic: The Expenditure Approach, Government Purchases Skill: Recognition
- In the computation of GDP, social security pay- ments count as A) transfer payments and are included in GDP. B) transfer payments and are not included in GDP. C) government purchases of goods and services and are included in GDP. D) government purchases of goods and services and are not included in GDP. Answer: B
Topic: The Expenditure Approach, Government Purchases Skill: Conceptual
- Which of the following is NOT part of GDP? A) General Motors’ purchases of new capital equipment B) Expenditures by the federal government for na- tional defense C) Social security payments made to the elderly D) The purchase of new homes by consumers Answer: C
Topic: Expenditure Approach, Government Purchases Skill: Conceptual
- Transfer payments are not part of government purchases of goods and services because transfer payments A) are not predictable given the nature of their ap- propriation and allocation. B) do not represent the purchase of a final good or service. C) are not always spent on goods produced in the U.S. D) The premise of the question is incorrect because transfer payments are part of government pur- chases of goods and services. Answer: B
Topic: Expenditure Approach, Net Exports Skill: Recognition
- Net exports of goods and services equal the A) exports of goods and services divided by the im- ports of goods and services. B) exports of goods and services plus the imports of goods and services. C) exports of goods and services minus the imports of goods and services. D) imports of goods and services minus the exports of goods and services. Answer: C
Topic: Expenditure Approach, Net Exports Skill: Conceptual
- In the calculation of GDP by the expenditure approach, exports from the United States must be A) subtracted because they are included in the con- sumption of a foreign country. B) ignored because they are not bought by U.S. citizens. C) subtracted if they are bought by foreign firms for investment purposes. D) added. Answer: D
Government purchases of goods and services
Depreciation 240 Gross private domestic investment 400 Personal income taxes 140 Net taxes 120 Net exports of goods and services 80 Personal consumption expenditures 640 Net interest 100 Topic: Expenditure Approach Skill: Analytical
- From the data in the above table, GDP equals A) $1,120. B) $1,280. C) $1,290. D) $1,360. Answer: D
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Topic: Income Approach, Net Interest Skill: Recognition
- In the national income accounts, net interest is the total interest payments received by households on loans made by them minus A) interest received from households’ ownership of government bonds. B) interest payments made by households on their own borrowing. C) interest payments made by households to for- eign lenders. D) taxes paid by households on their interest in- come. Answer: B
Topic: Income Approach, Rental Income Skill: Recognition
- Rental income includes A) the payment for the use of land. B) the payment for the use of all rented inputs. C) no income from rental housing because most houses are occupied by their owners. D) Both answers A and B are correct. Answer: D
Topic: Income Approach, Corporate Profits Skill: Recognition
- Which of the following are included in the cate- gory of corporate profits when measuring GDP? I. Profits paid as dividends. II. Undistributed profits. III. Income received by owners and operators of businesses. A) I only. B) I and II. C) I and III. D) I, II and III. Answer: B
Topic: Indirect Tax Skill: Recognition
- An indirect tax is a tax paid by consumers A) to a state or local government. B) when they purchase goods and services. C) on unearned income (as opposed to wages and salaries). D) that is a percentage of the value of their real property. Answer: B
Topic: Indirect Tax Skill: Conceptual
- All of the following are indirect taxes EXCEPT A) cigarette sales taxes. B) income taxes. C) liquor excise taxes. D) taxes on utility bills. Answer: B
Topic: Net Domestic Income At Factor Cost Skill: Recognition
- The sum of compensation to employees, rental income, corporate profits, net interest, and pro- prietors’ income is A) gross domestic product. B) gross domestic income. C) net domestic income at factor cost. D) net domestic product. Answer: C
Topic: Income Approach Skill: Conceptual
- Reasons why valuing goods at their market prices is different than valuing them at their factor costs include A) depreciation and investment. B) exports and imports. C) personal taxes and corporate taxes. D) indirect taxes and subsidies. Answer: D
Topic: Income Approach, Depreciation Skill: Recognition
- Gross domestic product minus net domestic product equals A) exports minus imports. B) imports minus exports. C) net taxes. D) depreciation. Answer: D
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Corporate profits $ Net interest 150 Indirect taxes less subsidies 230 Depreciation 250 Compensation of employees 1, Proprietor’s income 150 Rental income 70 Personal consumption expendi- tures
Government purchases of goods and services
Net exports of goods and services 40
Topic: Income Approach Skill: Analytical
- Using the data in the table above, gross domestic product equals A) $1,920. B) $1,940. C) $2,150. D) $2,400. Answer: D
Topic: Expenditure Approach Skill: Analytical
- Using the data in the above table, gross private domestic investment equals A) $250. B) $260. C) $460. D) some amount that cannot be determined with- out more information. Answer: C
Topic: Expenditure Approach Skill: Analytical
- Using the data in the above table, net private do- mestic investment equals A) $210. B) $260. C) $510. D) some amount that cannot be determined with- out more information. Answer: A
Component Amount (billions of dollars) Gross investment 1300 Personal consumption expenditure 1475 Depreciation 25 Government purchases 1315 U.S. imports 260 U.S. exports 249 Compensation of employees 65 Topic: Expenditure Approach Skill: Analytical
- The above table gives data for a hypothetical na- tion. Gross domestic product is A) $4,049 billion. B) $4,079 billion. C) $4,054 billion. D) $4,339 billion. Answer: B
Topic: Net Domestic Product Skill: Analytical
- The above table gives data for a hypothetical na- tion. Net domestic product is A) $4,039 billion. B) $4,044 billion. C) $4,054 billion. D) $4,314 billion. Answer: C
Real GDP and the Price Level
Topic: Real GDP Skill: Recognition
- Real GDP measures the A) total profits earned by all businesses valued us- ing prices from a single year. B) changes in the prices of output measured in dol- lars. C) general upward drift in prices. D) value of total production linked to prices of a single year. Answer: D
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Topic: Chain-Weighted Growth Rate Skill: Conceptual
- The chain-weighted output index A) uses only the current year’s prices to calculate growth in real GDP. B) uses prices for the current year and the previous year to calculate growth in real GDP. C) must only be calculated every other year. D) is an inaccurate way to measure growth in real GDP and so has been replaced by the “nominal- to-real” index. Answer: B
Topic: Chain-Weighted Growth Rate Skill: Conceptual
- The chain-weighted output index method of cal- culating real GDP compares A) compares the quantities of goods produced in consecutive years using prices in both years and averaging the percentage changes in the value of output. B) quantities produced in different years using prices from a year chosen as a reference period. C) quantities produced in different years with the prices that prevailed during the year in which the output was produced. D) prices at different points in time using a sample of goods that is representative of goods pur- chased by households. Answer: A
Topic: Chain-Weighted Growth Rate Skill: Conceptual
- The chain-weighted output index method of measuring real GDP is based on A) using current prices rather than base year prices B) averaging the market value of the expenditures over a two year period and then comparing with a base period. C) using the prices of two adjacent years to calcu- late the growth rate of real GDP. D) averaging the nominal and real measures of GDP to come up with a more accurate figure. Answer: C
Topic: GDP Deflator Skill: Recognition
- The GDP deflator equals 100 times A) nominal GDP divided by real GDP. B) real GDP divided by nominal GDP. C) gross domestic product divided by net domestic product. D) net domestic product divided by gross domestic product. Answer: A
Topic: Real and Nominal GDP Skill: Analytical
- Suppose that nominal GDP per person is $18,000 in 2004, the 1998 GDP deflator is 100, and the 2004 GDP deflator is 110. The approxi- mate real per person GDP in 2004 is A) $16,364. B) $16,634. C) $18,000. D) $19,800. Answer: A
Topic: Real and Nominal GDP Skill: Analytical
- Suppose that nominal GDP per person is $17,000 in 2004, the 1998 GDP deflator is 100, and the 2004 GDP deflator is 90. The approxi- mate real GDP per person in 2004 is A) $17,000. B) $18,889. C) $32,300. D) $15,300. Answer: B
Topic: Real and Nominal GDP Skill: Analytical
- Suppose that nominal GDP per person is $21,000 in 2004, the 1998 GDP deflator is 100, and the 2004 deflator is 105. The approximate real GDP per person in 2004 is A) $20,000. B) $21,000. C) $19,048. D) $22,050. Answer: A
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Topic: GDP Deflator Skill: Recognition
- The implicit GDP deflator is calculated by A) comparing the quantities of goods produced in consecutive years using prices in both years and averaging the percentage changes in the value of output. B) comparing the quantities produced in different years using prices from a year chosen as a refer- ence period. C) comparing the quantities produced in different years with the prices that prevailed during the year in which the output was produced. D) dividing nominal GDP by real GDP. Answer: D
Measuring Economic Growth
Topic: Over Adjustment for Inflation Skill: Conceptual
- If the GDP deflator is biased by quality changes, the result is that A) nominal GDP is understated. B) real GDP is overstated. C) there is no effect upon the correct level of real GDP. D) real GDP is understated. Answer: D
Topic: Household Production Skill: Recognition
- Which of the following is NOT included in real GDP? A) Production of services, such as the services of doctors. B) Production of goods that last more than one year, such as television sets. C) Production of goods that do not last more than one year, such as gasoline. D) Production in the home. Answer: D
Topic: Household Production Skill: Analytical
- If a larger fraction of the adult population is working, household production A) counted in real GDP increases. B) not counted in real GDP increases. C) counted in real GDP decreases. D) not counted in real GDP decreases. Answer: D
Topic: Underground Economic Activity Skill: Recognition
- Which of the following is NOT included in real GDP? A) Production of services, such as the services of hair dressers. B) Production of goods that last less than a year, such as production of hot dogs. C) Production that takes place in the underground economy. D) Production of goods that last more than a year, such as a pair of roller blades. Answer: C
Topic: Underground Economic Activity Skill: Conceptual
- The underground economy exists for all of the following reasons EXCEPT the A) production of illegal goods. B) avoidance of taxes. C) desire to maintain accurate records of economic transactions. D) avoidance of government regulation. Answer: C
Topic: Environmental Quality Skill: Conceptual
- Because pollution reduces economic welfare, real GDP A) decreases as pollution increases. B) increases to take into account the expenditures that will be made in the future to clean up the pollution. C) overstates economic welfare. D) understates economic welfare. Answer: C
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Topic: Study Guide Question, Financing Investment Skill: Recognition
- A nation’s investment must be financed by A) national saving only. B) the government’s budget deficit. C) borrowing from the rest of the world only. D) national saving plus borrowing from the rest of the world. Answer: D
Topic: Study Guide Question, Flows and Stocks Skill: Conceptual
- Which of the following is a flow? A) GDP B) Wealth C) The amount of money in a savings account D) Capital Answer: A
Topic: Study Guide Question, Flows and Stocks Skill: Conceptual
- Which of the following is a stock? A) Income B) Depreciation C) Investment D) Capital Answer: D
Topic: Study Guide Question, Flows and Stocks Skill: Conceptual
- ____ is a flow variable and ____ is a stock vari- able. A) Wealth; income B) Income; capital C) Wealth; capital D) Depreciation; income Answer: B
Topic: Study Guide Question, Expenditure Approach, Investment Skill: Conceptual
- Gross private domestic investment is a compo- nent of which approach to measuring GDP? A) Incomes approach B) Expenditure approach C) Linking approach D) Output approach Answer: B
Topic: Study Guide Question, Incomes Approach Skill: Conceptual
- Which of the following is NOT a component of the incomes approach to GDP? A) Net exports B) Wages and salaries C) Corporate profits D) Proprietors’ income Answer: A
Topic: Study Guide Question, Real GDP Skill: Recognition
- Currently, real GDP is calculated using A) the quantities only method. B) base year prices method. C) current year prices method. D) chain-weighted output index method. Answer: D
Topic: Study Guide Question, Real GDP Skill: Analytical
- Real GDP in 2002 is $100. Between 2002 and 2003, using 2002 prices GDP grew 8 percent and using 2003 prices real GDP grew 4 percent. What does real GDP in 2003 equal? A) $ B) $ C) $ D) None of the above answers is correct. Answer: B
Topic: Study Guide Question, Real and Nominal GDP Skill: Analytical
- If the GDP deflator for 2004 is 125, nominal GDP A) equals real GDP in 2004. B) is greater than real GDP in 2004. C) is less than real GDP in 2004. D) in 2003 will be less than real GDP in 2004. Answer: B
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Year
Nominal GDP (billions of dollars)
Real GDP (billions of dollars)
GDP deflator
2004 2500 ____ 105
2005 ____ 2400 117
Topic: Study Guide Question, Real and Nominal GDP Skill: Analytical
- Using the data in the above table, what is real GDP in 2004? A) $2137 billion. B) $2520 billion. C) $2381 billion. D) $2051 billion. Answer: C
Topic: Study Guide Question, Real and Nominal GDP Skill: Analytical
- Using the data in the above table, what is nominal GDP in 2005? A) $2400 billion. B) $2381 billion. C) $2808 billion. D) $2520 billion. Answer: C
Topic: Study Guide Question, Environmental Quality Skill: Conceptual
- Pollution is a by-product of some production processes, so real GDP as measured A) is adjusted downward to take into account the pollution. B) is adjusted upward to take into account the ex- penditures that will be made in the future to clean up the pollution. C) tends to overstate economic welfare. D) tends to understate economic welfare. Answer: C
Topic: Study Guide Question, Household Production Skill: Conceptual
- Which of the following is NOT a reason that real GDP is a poor measure of a nation’s economic welfare? A) Real GDP omits measures of political freedom. B) Real GDP does not take into account the value of people’s leisure time. C) Real GDP does not include the underground economy. D) Real GDP overvalues household production. Answer: D
Topic: Study Guide Question, International Comparisons Skill: Recognition
- Which of the following statements about the comparison between GDP in China and in the United States is correct? A) Using the exchange rate to value China’s GDP in dollars shows that China’s GDP per person exceeds the GDP per person in the United States. B) Using purchasing power parity prices to value China’s GDP in dollars shows that China’s GDP per person exceeds the GDP per person in the United States. C) China’s GDP per person is higher using pur- chasing power parity prices rather than the ex- change rate when valuing China’s GDP in dol- lars. D) None of the above answers are correct because they are all false statements. Answer: C
MyEconLab Questions
Topic: Flows and Stocks Level 1: Definitions and Concepts
- An example of a stock is ____ and an example of a flow is ____. A) depreciation; capital B) capital; investment C) investment; capital D) investment; depreciation Answer: C
