Question 1

Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?

Accepted Answer

A)  The real GDP figures are a better measure of changes in the general level of prices. 
B)  The real figures will reflect changes in the quantity of output and not changes in the general level of prices. 
C)  The real figures will reflect changes in the general level of prices as well as changes in the quantity of output. 
D)  The real GDP figures adjust for changes in the level of employment. 
A)  The real GDP figures are a better measure of changes in the general level of prices. 
B)  The real figures will reflect changes in the quantity of output and not changes in the general level of prices. 
C)  The real figures will reflect changes in the general level of prices as well as changes in the quantity of output. 
D)  The real GDP figures adjust for changes in the level of employment.

Question 2

If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted?

Accepted Answer

A)  Japan's, because Honda is a Japanese company 
B)  Japan's because that is where the car is purchased 
C)  The GDP of the United States because that is where it was built 
D)  Both Japan and the United States 
A)  Japan's, because Honda is a Japanese company 
B)  Japan's because that is where the car is purchased 
C)  The GDP of the United States because that is where it was built 
D)  Both Japan and the United States

Question 3

Which of the following is true of the chained consumer price index?

Accepted Answer

A)  It will generally result in a slightly lower figure for the measured annual rate of inflation than the regular consumer price index. 
B)  It makes no allowance for shifts away from goods and services as they become more expensive. 
C)  It considers only changes in the prices of household necessities such as food and clothing. 
D)  It holds the quantities of the goods and services used to calculate the index constant over lengthy time periods. 
A)  It will generally result in a slightly lower figure for the measured annual rate of inflation than the regular consumer price index. 
B)  It makes no allowance for shifts away from goods and services as they become more expensive. 
C)  It considers only changes in the prices of household necessities such as food and clothing. 
D)  It holds the quantities of the goods and services used to calculate the index constant over lengthy time periods.

Question 4

Gross domestic product

Accepted Answer

A)  is the sum of all exchanges of goods and services during a period. 
B)  includes financial transactions such as the purchase of stocks or bonds traded during a period. 
C)  is the sum of expenditures for both intermediate and final user goods. 
D)  is the sum of the total spending on all final-user goods and services produced domestically during a period. 
A)  is the sum of all exchanges of goods and services during a period. 
B)  includes financial transactions such as the purchase of stocks or bonds traded during a period. 
C)  is the sum of expenditures for both intermediate and final user goods. 
D)  is the sum of the total spending on all final-user goods and services produced domestically during a period.

Question 5

A real estate salesperson sells a house in 2011 that was built in 1994. How does this transaction get counted in the GDP statistics?

Accepted Answer

A)  The price of the house and the real estate salesperson's commission are both included in 2011's GDP. 
B)  Neither the price of the house or the commission is included in 2011's GDP. 
C)  The real estate salesperson's commission but not the price of the house is included in 2011's GDP. 
D)  The price of the house would be included in both 1994's GDP and the GDP for 2011. 
A)  The price of the house and the real estate salesperson's commission are both included in 2011's GDP. 
B)  Neither the price of the house or the commission is included in 2011's GDP. 
C)  The real estate salesperson's commission but not the price of the house is included in 2011's GDP. 
D)  The price of the house would be included in both 1994's GDP and the GDP for 2011.

Question 6

Double counting in the resource cost-income approach to GDP statistics is avoided by

Accepted Answer

A)  correct accounting of the values of exports and imports 
B)  choosing only one method to calculate GDP--either the income or the expenditures method 
C)  counting only the value added at each stage of a good's production process 
D)  counting the value of final and intermediate goods and services 
E)  subtracting the total value of intermediate goods and services from the total value of final goods and services 
A)  correct accounting of the values of exports and imports 
B)  choosing only one method to calculate GDP--either the income or the expenditures method 
C)  counting only the value added at each stage of a good's production process 
D)  counting the value of final and intermediate goods and services 
E)  subtracting the total value of intermediate goods and services from the total value of final goods and services

Question 7

Suppose the CPI was 104 in 1967, and suppose currently the CPI is 390. According to the CPI, $10 in 1967 purchased the same number of goods and services as

Accepted Answer

A)  $28.88 purchases today. 
B)  $37.50 purchases today. 
C)  $42.64 purchases today. 
D)  $104.00 purchases today. 
A)  $28.88 purchases today. 
B)  $37.50 purchases today. 
C)  $42.64 purchases today. 
D)  $104.00 purchases today.

Question 8

The nominal salary paid to the president of the United States and the Consumer Price Index (CPI) are given for various years below. Table 7-9
  Refer to Table 7-9. The salary of the president of the United States in 2000 was $400,000. In 1940, the president's salary was $75,000. If the Consumer Price Index was 8.1 in 1940 and 100 in 2000, the 1940 presidential salary measured in terms of the purchasing power of the dollar in 2000 would be

Accepted Answer

A)  less than $75,000. 
B)  less than $400,000. 
C)  approximately $668,850. 
D)  approximately $750,000. 
E)  approximately $926,000. 
A)  less than $75,000. 
B)  less than $400,000. 
C)  approximately $668,850. 
D)  approximately $750,000. 
E)  approximately $926,000.

Question 9

Which of the following correctly states the relationship between GDP and GNP for the U.S.?

Accepted Answer

A)  GDP equals GNP minus the net income of foreigners. 
B)  GDP equals GNP plus the net income of foreigners. 
C)  GDP equals GNP minus indirect business taxes. 
D)  GDP equals GNP. 
A)  GDP equals GNP minus the net income of foreigners. 
B)  GDP equals GNP plus the net income of foreigners. 
C)  GDP equals GNP minus indirect business taxes. 
D)  GDP equals GNP.

Question 10

Gross domestic product equals the sum of

Accepted Answer

A)  all income earned by domestic producers of goods and services minus indirect business taxes and depreciation during the year. 
B)  the purchases of final goods and services produced domestically during a year. 
C)  the amount received by firms for consumer goods and services. 
D)  incomes received by households minus the sale of factor services supplied domestically. 
A)  all income earned by domestic producers of goods and services minus indirect business taxes and depreciation during the year. 
B)  the purchases of final goods and services produced domestically during a year. 
C)  the amount received by firms for consumer goods and services. 
D)  incomes received by households minus the sale of factor services supplied domestically.

Question 11

New residential housing is counted in GDP as

Accepted Answer

A)  a durable consumption good. 
B)  a household durable good. 
C)  an investment good. 
D)  an inventory expansion. 
E)  a long-term durable good. 
A)  a durable consumption good. 
B)  a household durable good. 
C)  an investment good. 
D)  an inventory expansion. 
E)  a long-term durable good.

Question 12

Which of the following best illustrates the difference between GDP and GNP?

Accepted Answer

A)  GDP measures the goods consumed by the citizens of a country, while GNP measures output exported to other countries. 
B)  GDP measures the output produced by the citizens within a country, while GNP measures output produced by noncitizens within a country. 
C)  GDP measures the output produced by the citizens of a country, while GNP measures output produced within the borders of a country. 
D)  GDP measures the output produced within the borders of a country, while GNP measures output produced by the citizens of a country. 
A)  GDP measures the goods consumed by the citizens of a country, while GNP measures output exported to other countries. 
B)  GDP measures the output produced by the citizens within a country, while GNP measures output produced by noncitizens within a country. 
C)  GDP measures the output produced by the citizens of a country, while GNP measures output produced within the borders of a country. 
D)  GDP measures the output produced within the borders of a country, while GNP measures output produced by the citizens of a country.

Question 13

Your father tells you he earned $3.00 per hour when he was 16 in 1977; you remember making $6.00 per hour when you were 16 in 1999. Given that the CPI was 36.7 in 1977 and 166.1 in 1999, which of the following is the 1999 real equivalent of your father's hourly earnings when he was 16?

Accepted Answer

A)  $4.48 
B)  $6.78 
C)  $13.58 
D)  $15.01 
A)  $4.48 
B)  $6.78 
C)  $13.58 
D)  $15.01

Question 14

A business spends $10 million on new capital equipment, and during the same year, $7 million of its existing capital wears out. Which of the following is correct?

Accepted Answer

A)  The firm's gross investment is $7 million, and its net investment is $10 million. 
B)  The firm's gross investment is $3 million, and its net investment is $7 million. 
C)  The firm's gross investment is $7 million, and its net investment is $3 million. 
D)  The firm's gross investment is $10 million, and its net investment is $3 million. 
A)  The firm's gross investment is $7 million, and its net investment is $10 million. 
B)  The firm's gross investment is $3 million, and its net investment is $7 million. 
C)  The firm's gross investment is $7 million, and its net investment is $3 million. 
D)  The firm's gross investment is $10 million, and its net investment is $3 million.

Question 15

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

Accepted Answer

A)  allow for the measurement of GDP. 
B)  allow consumers to know what kinds of prices to expect in the future. 
C)  allow for the comparison of dollar figures from different points in time. 
D)  allow for the comparison of dollar figures from the same point in time. 
A)  allow for the measurement of GDP. 
B)  allow consumers to know what kinds of prices to expect in the future. 
C)  allow for the comparison of dollar figures from different points in time. 
D)  allow for the comparison of dollar figures from the same point in time.

Question 16

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to

Accepted Answer

A)  overstate the impact of higher prices on consumers. 
B)  consistently underestimate the true inflation rate. 
C)  omit the benefits of product quality improvements. 
D)  have larger fluctuations than other price indexes. 
A)  overstate the impact of higher prices on consumers. 
B)  consistently underestimate the true inflation rate. 
C)  omit the benefits of product quality improvements. 
D)  have larger fluctuations than other price indexes.

Question 17

Jayden, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

Accepted Answer

A)  included in both U.S. GDP and U.S. GNP. 
B)  included in U.S. GDP, but it is not included in U.S. GNP. 
C)  included in U.S. GNP, but it is not included in U.S. GDP. 
D)  included in neither U.S. GDP nor U.S. GNP. 
A)  included in both U.S. GDP and U.S. GNP. 
B)  included in U.S. GDP, but it is not included in U.S. GNP. 
C)  included in U.S. GNP, but it is not included in U.S. GDP. 
D)  included in neither U.S. GDP nor U.S. GNP.

Question 18

If the consumer price index (CPI) at the end of year one was 100 and was 108 at the end of year two, the inflation rate during year two was

Accepted Answer

A)  zero; the CPI of 100 indicates that prices were stable. 
B)  8 percent. 
C)  5 percent. 
D)  108 percent. 
A)  zero; the CPI of 100 indicates that prices were stable. 
B)  8 percent. 
C)  5 percent. 
D)  108 percent.

Question 19

The GDP deflator is designed to

Accepted Answer

A)  adjust nominal GDP for changes in the unemployment rate. 
B)  adjust nominal GDP so as to include the problem of externalities. 
C)  adjust nominal GDP for changes in the price level. 
D)  calculate changes in the price of food and other consumer goods. 
A)  adjust nominal GDP for changes in the unemployment rate. 
B)  adjust nominal GDP so as to include the problem of externalities. 
C)  adjust nominal GDP for changes in the price level. 
D)  calculate changes in the price of food and other consumer goods.

Question 20

In 1980, the price of a gallon of gasoline was $1.25. The Consumer Price Index was 82.4 in 1980 compared to 215.3 in 2008 (1983 − 1984 = 100). Measured in 2008 dollars, the price of gasoline in 1980 was

Accepted Answer

A)  $0.56. 
B)  $1.25. 
C)  $2.37. 
D)  $3.27. 
A)  $0.56. 
B)  $1.25. 
C)  $2.37. 
D)  $3.27.

Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?

If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted?

Which of the following is true of the chained consumer price index?

Gross domestic product

A real estate salesperson sells a house in 2011 that was built in 1994. How does this transaction get counted in the GDP statistics?

Double counting in the resource cost-income approach to GDP statistics is avoided by

Suppose the CPI was 104 in 1967, and suppose currently the CPI is 390. According to the CPI, $10 in 1967 purchased the same number of goods and services as

Which of the following correctly states the relationship between GDP and GNP for the U.S.?

Gross domestic product equals the sum of

New residential housing is counted in GDP as

Which of the following best illustrates the difference between GDP and GNP?

Your father tells you he earned $3.00 per hour when he was 16 in 1977; you remember making $6.00 per hour when you were 16 in 1999. Given that the CPI was 36.7 in 1977 and 166.1 in 1999, which of the following is the 1999 real equivalent of your father's hourly earnings when he was 16?

A business spends $10 million on new capital equipment, and during the same year, $7 million of its existing capital wears out. Which of the following is correct?

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

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to

Jayden, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

If the consumer price index (CPI) at the end of year one was 100 and was 108 at the end of year two, the inflation rate during year two was

The GDP deflator is designed to

In 1980, the price of a gallon of gasoline was $1.25. The Consumer Price Index was 82.4 in 1980 compared to 215.3 in 2008 (1983 − 1984 = 100). Measured in 2008 dollars, the price of gasoline in 1980 was

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 7: Taking the Nations Economic Pulse

Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?

If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted?

Which of the following is true of the chained consumer price index?

Gross domestic product

A real estate salesperson sells a house in 2011 that was built in 1994. How does this transaction get counted in the GDP statistics?

Double counting in the resource cost-income approach to GDP statistics is avoided by

Suppose the CPI was 104 in 1967, and suppose currently the CPI is 390. According to the CPI, $10 in 1967 purchased the same number of goods and services as

Which of the following correctly states the relationship between GDP and GNP for the U.S.?

Gross domestic product equals the sum of

New residential housing is counted in GDP as

Which of the following best illustrates the difference between GDP and GNP?

Your father tells you he earned $3.00 per hour when he was 16 in 1977; you remember making $6.00 per hour when you were 16 in 1999. Given that the CPI was 36.7 in 1977 and 166.1 in 1999, which of the following is the 1999 real equivalent of your father's hourly earnings when he was 16?

A business spends $10 million on new capital equipment, and during the same year, $7 million of its existing capital wears out. Which of the following is correct?

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

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to

Jayden, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

If the consumer price index (CPI) at the end of year one was 100 and was 108 at the end of year two, the inflation rate during year two was

The GDP deflator is designed to

In 1980, the price of a gallon of gasoline was $1.25. The Consumer Price Index was 82.4 in 1980 compared to 215.3 in 2008 (1983 − 1984 = 100). Measured in 2008 dollars, the price of gasoline in 1980 was

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters