Question 1

Table 6.4
 $$\begin{array}{l}
\text { Table } 6.4\
\begin{array} { c c c } 
\text { Year } & \text { Price Index } & \text { Nominal GDP } \
\hline 2001 & 100 & \$ 95 \text { billion } \
2002 & 105 & \$ 110 \text { billion } \
2003 & 110 & \$ 120 \text { billion } \
2004 & 120 & \$ 125 \text { billion } \
2005 & 132 & \$ 137.5 \text { billion }
\end{array}
\end{array}$$
-Refer to Table 6.4, which shows the price indexes and the nominal gross domestic product (GDP) for an economy from 2001 to 2005. The real GDP _____ between 2001 and 2002.

Accepted Answer

A)  increased by slightly less than $10 billion 
B)  decreased by slightly more than $5 billion 
C)  remained constant 
D)  increased by only about $1 billion 
E)  increased more than $20 billion

Question 2

Which of the following is included as government purchases in gross domestic product (GDP)?

Accepted Answer

A)  Social Security payments to elderly citizens 
B)  welfare benefits distributed to the poor 
C)  outright grants from government to recipients 
D)  payments to clerical workers hired by the government 
E)  unemployment compensation benefits

Question 3

If 2016 is the base year and the price index in 2017 is 100, prices in 2017 are _____ than prices in 2016.

Accepted Answer

A)  1 percent higher 
B)  10 percent higher 
C)  10 percent lower 
D)  9 percent higher 
E)  unchanged

Question 4

The nominal gross domestic product (GDP) for a country was $1,000 in 2003 and $1,500 in 2004. The GDP price index was 100 in 2003 and 150 in 2004. Between 2003 and 2004, real GDP _____.

Accepted Answer

A)  increased by $500 
B)  increased by $333 
C)  increased by $50 
D)  remained the same 
E)  decreased by $50

Question 5

If the nominal gross domestic product (GDP) for the year 2000 was $6.2 trillion and the price index was 200, the real gross domestic product (GDP) for 2000 was _____.

Accepted Answer

A)  $3.1 trillion 
B)  $6.2 trillion 
C)  $12.4 trillion 
D)  $18.6 trillion 
E)  $24.3 trillion

Question 6

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

Accepted Answer

A)  Both measures weigh prices by quantities consumed in some base year. 
B)  Both yield identical numbers for price level changes for any two years. 
C)  Both CPI and the GDP price index underestimate changes in the price level in an economy. 
D)  The CPI measures changes in relative prices of goods, while the GDP price index measures changes in the absolute price level of a fixed basket of goods and services. 
E)  CPI includes products that are widely used, while the GDP price index includes all goods and services.

Question 7

If the price index is 100 in the base year, and 200 in the next year, what happened to prices?

Accepted Answer

A)  Prices increased by 20%. 
B)  Prices decreased by 20%. 
C)  Prices increased by 100%. 
D)  Prices decreased by 100%. 
E)  Prices did not change.

Question 8

Which of the following statements is true regarding leakages and injections?

Accepted Answer

A)  Government transfer payments must equal exports because one is a leakage and the other is an injection. 
B)  Imports must equal exports since both are leakages. 
C)  Government purchases, investment, and exports are leakages from the circular flow of income and expenditure. 
D)  Savings and net taxes are leakages from the circular flow of income and expenditure. 
E)  Net taxes are an injection into the circular flow, while exports are a leakage.

Question 9

Real gross domestic product (GDP) shows _____

Accepted Answer

A)  total spending on intermediate goods and services. 
B)  the dollar value of GDP in a particular year measured in base-year prices. 
C)  net domestic product. 
D)  nominal GDP adjusted for taxes. 
E)  domestic income.

Question 10

Which of the following is an example of an intermediate good?

Accepted Answer

A)  sugar bought by a bakery 
B)  sugar bought by a family 
C)  furniture bought by a family 
D)  burgers bought at a restaurant 
E)  medicines bought at a pharmacy

Question 11

Which of the following is likely to be excluded from the gross domestic product (GDP) of a country?

Accepted Answer

A)  the value of the drugs being sold in a vacant lot 
B)  the value of the drugs being sold in a pharmacy 
C)  a doctor treating a patient in a hospital 
D)  the value of a new house bought by an individual 
E)  the value of new furniture bought by an individual

Question 12

In the double-entry bookkeeping system used to track the economy, _____

Accepted Answer

A)  the value of aggregate output equals the aggregate income paid for the resources used to produce that output. 
B)  government spending on transfer payments is recorded. 
C)  the earnings of all shareholders in the economy from the sale of shares are recorded. 
D)  inventories are counted twice, once as investment and once as output. 
E)  intermediate goods are counted twice, once as a type of output and once as part of the final output.

Question 13

If the consumer price index (CPI) is 220 one year and 210 the next, the annual rate of inflation as measured by the CPI is approximately _____.

Accepted Answer

A)  −2.3 percent 
B)  −4.6 percent 
C)  10 percent 
D)  4.8 percent 
E)  220 percent

Question 14

_____ is counting an item's value more than once.

Accepted Answer

A)  Intermediate goods and services 
B)  Final goods and services 
C)  The income approach 
D)  The expenditure approach 
E)  Double-counting

Question 15

The consumer price index (CPI) is a measure of the _____

Accepted Answer

A)  cost of a market basket of consumer goods and services relative to its cost in the base year. 
B)  change in the average price of a market basket of necessary goods and services. 
C)  cost of a market basket of consumer goods relative to the previous year. 
D)  change in the average price of all intermediate goods and services. 
E)  average price of all final goods and services relative to the average price in the previous year.

Question 16

If the value of exports equals $6.5 billion and the value of imports equals $8.0 billion in a year, then _____

Accepted Answer

A)  together imports and exports add $1.5 billion to the GDP. 
B)  together exports and imports add $6.5 billion to the GDP. 
C)  together exports and imports reduce the gross domestic product (GDP) by $1.5 billion. 
D)  together exports and imports add $14.5 billion to the GDP. 
E)  together exports and imports add nothing to the GDP.

Question 17

Gross domestic product (GDP) is a good measure of social welfare since it includes the value of leisure time.

Accepted Answer

A) True 
 B)False

Question 18

The GDP price index _____

Accepted Answer

A)  measures the average price of final goods and services produced in an economy. 
B)  measures the quality of goods produced in an economy. 
C)  is derived using the prices of only imported and exported goods and services. 
D)  is derived using the implicit prices of goods and services produced by the government. 
E)  measures the value of all intermediate goods and services sold in an economy.

Question 19

Marianne and Laura are both homemakers with children. When Laura starts to work as an unpaid volunteer at a hospital, she hires Marianne to care for her young child. In this context, the gross domestic product (GDP) will _____

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unaffected. 
D)  increase if Marianne cares for the child better than Laura. 
E)  increase if Laura treats patients with more sincerity than the other volunteers.

Question 20

If 2016 is the base year and the price index in 2017 is 109, then prices in 2017 are _____ than prices in 2016.

Accepted Answer

A)  1 percent higher 
B)  8 percent higher 
C)  9 percent higher 
D)  10 percent higher 
E)  12 percent higher

Exam 6: Tracking the U. S. Economy.

Which of the following is included as government purchases in gross domestic product (GDP) ?