Question 1

Using the table below,calculate GDP for a particular year.
$\begin{array}{l|r}
\text { Wages and salaries } & \$ 2,000 \
\hline \text { Government purchases of goods and services } & \$ 500 \
\hline \text { Exports } & \$ 800 \
\hline \text { Rental income } & \$ 300 \
\hline \text { Consumption spending } & \$ 3,000 \
\hline \text { Transfer payments } & \$ 300 \
\hline \text { Private investment spending } & \$ 600 \
\hline \text { Profit } & \$ 1,200 \
\hline \text { Imports } & \$ 600 \
\hline \text { Interest income } & \$ 800 \
\hline \text { Purchases of corporate stock } & \$ 500
\end{array}$

Based on the above information,GDP in this year was

Accepted Answer

A)  $4,100 
B)  $4,300 
C)  $4,400 
D)  $4,600 
E)  $4,900

Question 2

GDP can be used to measure both short-term changes (i.e. ,over several months)and long-term changes in economic activity.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following factors may lead to an underestimation of the significance of unemployment when evaluating the overall unemployment rate?

Accepted Answer

A)  Involuntary full-time employment 
B)  An increase in the number of military personnel 
C)  Discouraged workers 
D)  An increase in the number of people under the age of 16 
E)  A decrease in the number of institutionalized people

Question 4

Which of the following would be included in a year's GDP?

Accepted Answer

A)  Susan cleans the fuel injectors on her car. 
B)  A private individual purchases 100 shares of IBM stock. 
C)  A timber company purchases land in Oregon. 
D)  A man buys an antique desk from his neighbor. 
E)  A college professor purchases a new computer.

Question 5

Suppose that in 2009,private investment spending was $500 billion,government investment was $300 billion,and depreciation was $250 billion.How much did the capital stock increase in 2009 (assume there were no other changes that affect the capital stock)?

Accepted Answer

A)  $300 billion 
B)  $500 billion 
C)  $550 billion 
D)  $800 billion 
E)  $1.05 trillion

Question 6

At what U.S.unemployment rate do most economists believe full employment occurs?

Accepted Answer

A)  0 percent 
B)  between 1.5 and 2.0 percent 
C)  between 4.5 and 5.0 percent 
D)  between 5.5 and 6.0 percent 
E)  between 7.5 and 8.0 percent

Question 7

If the full-employment rate of unemployment is 5 percent,and the economy is experiencing a 7 percent unemployment rate,what is the rate of cyclical unemployment?

Accepted Answer

A)  7 percent 
B)  12 percent 
C)  -2 percent 
D)  5 percent 
E)  2 percent

Question 8

A firm's value added is

Accepted Answer

A)  the revenue it receives by selling its output 
B)  usually not included in GDP 
C)  the revenue it receives for its output,minus the cost of all the intermediate goods it buys 
D)  the revenue it receives for its output,plus the cost of all the intermediate goods it buys 
E)  the revenue it receives for its output,minus the taxes that it pays

Question 9

This year,Shirts Inc.purchased $1,000 worth of silk from the Silky Silkworm Company,$100 worth of buttons from Barney's Buttons,and $200 worth of thread from Tracy's Thread Company.Shirts Inc.sold the shirts they produced for $2,000.As a result of these transactions,how much did Shirts Inc.contribute to GDP this year?

Accepted Answer

A)  $700 
B)  $1,300 
C)  $2,000 
D)  $2,700 
E)  $3,300

Question 10

Cyclical unemployment

Accepted Answer

A)  is short-term joblessness experienced by those who are between jobs 
B)  is joblessness created by a mismatch between available jobs and workers' skills 
C)  is joblessness related to regular seasonal events such as holidays or weather changes 
D)  is joblessness caused entirely by microeconomic forces 
E)  does not exist when the economy is at full employment

Question 11

Frictional unemployment is joblessness

Accepted Answer

A)  related to changes in weather and similar factors 
B)  arising from a mismatch between available jobs and workers' skills 
C)  resulting from macroeconomic fluctuations 
D)  that is short-term and is experienced by people who are between jobs 
E)  that is caused by structural changes in the economy

Question 12

In the factor payments approach,owners of land receive

Accepted Answer

A)  wages 
B)  user fees 
C)  rent 
D)  interest 
E)  profit

Question 13

Transfer payments are

Accepted Answer

A)  payments for goods or services that individuals provide 
B)  funds given to people or organizations when no good or service is received in exchange 
C)  included in the government purchases category of GDP 
D)  examples of government investment 
E)  used to pay state employees

Question 14

GDP is used in the __________ to __________.

Accepted Answer

A)  long run;alert us to recessions 
B)  short run;alert us to recessions 
C)  long run;gauge the success of monetary policy 
D)  short run;measure changes in the standard of living 
E)  short run;check for inflation

Question 15

Assume that the telephone company built a new plant this year.The value of the new plant is

Accepted Answer

A)  counted in GDP as public investment 
B)  not counted in GDP 
C)  not included in private investment spending 
D)  an intermediate good,but it is not counted in GDP 
E)  included in GDP

Question 16

Which of the following would be classified as a government purchase?

Accepted Answer

A)  Social security payments 
B)  Government purchases of computers 
C)  Unemployment insurance payments 
D)  Welfare payments 
E)  Veterans' Administration payments.

Question 17

If GDP is $1,000,consumption is $750,interest payments are $200,rent payments are $400,and profits are $200,what must wages and salaries equal?

Accepted Answer

A)  $800 
B)  $400 
C)  $250 
D)  $0 
E)  $200

Question 18

What fraction of the labor force is cyclically unemployed when structural unemployment is 2 percent,frictional unemployment is 2.5 percent,seasonal unemployment is 1 percent,and the overall unemployment rate is 8 percent?

Accepted Answer

A)  2.5 percent 
B)  13.5 percent 
C)  4.5 percent 
D)  5.5 percent 
E)  8.0 percent

Question 19

Which of the following is the best definition of potential output?

Accepted Answer

A)  The output that could be produced if the economy were above full employment 
B)  The output that could be produced if the economy had no unemployment 
C)  The output that could be produced if the economy had no frictional unemployment 
D)  The output that could be produced if the economy were at full employment 
E)  The output that could be produced if the economy had no structural unemployment

Question 20

The presence of involuntary part-time workers

Accepted Answer

A)  causes the official unemployment rate to underestimate actual unemployment 
B)  causes the official unemployment rate to overestimate actual unemployment 
C)  has no effect on the accuracy of the official unemployment rate 
D)  is accounted for in the official unemployment rate 
E)  is insignificant in the U.S.economy and thus is no cause for concern

Exam 6: Production, Income, and Employment