Question 1

Which of the following is a leakage from the circular flow?

Accepted Answer

A)  government purchases of goods and services
B)  taxes
C)  investment
D)  exports
E)  consumption expenditures

Question 2

Use the following data to calculate GDP: consumption = $2,000; gross investment = $600; government purchases = $500; net exports = -$40; transfer payments = $340.

Accepted Answer

A)  GDP = $2,720
B)  GDP = $3,060
C)  GDP = $3,140
D)  GDP = $3,400
E)  GDP cannot be determined due to insufficient data

Question 3

GDP is not a perfect measure of welfare because it

Accepted Answer

A)  treats a dollar spent on guns the same as a dollar spent on education
B)  treats a dollar spent on exports the same as a dollar spent on imports
C)  double counts the value of leisure time
D)  double counts depreciation
E)  counts illegal activities in the underground economy

Question 4

The final market value of a good is

Accepted Answer

A)  the sum of values added at all stages of production
B)  the value added at one stage of production
C)  greater than the sum of all the values added at all stages of production
D)  less than the sum of all the values added at all stages of production
E)  less than the price for which it is sold

Question 5

If real GDP increased by 3 percent, then

Accepted Answer

A)  real output has increased by 3 percent
B)  the price level has increased by 3 percent
C)  consumer spending increased by 3 percent
D)  government spending increased by 3 percent
E)  the increase might have been caused by an increase in the price level, but we cannot tell for sure

Question 6

Which of the following expenditures are not included in the consumption component of GDP?

Accepted Answer

A)  maid service
B)  purchase of a new home
C)  a new videocassette recorder
D)  a restaurant meal
E)  tax preparation service

Question 7

If U.S. net investment is positive, the nation's capital stock is growing.

Accepted Answer

A) True 
 B)False

Question 8

Gross Domestic Product measures the

Accepted Answer

A)  market value of all final goods and services produced by a nation's citizens, residents and firms of a nation regardless of the location of production
B)  market value of all final goods and services produced by resources located within a nation regardless of who owns those resources
C)  market value of all goods and services produced by resources located within a nation regardless of who owns those resources
D)  market values of all goods and services produced by a nation's citizens and firms regardless of the location of production
E)  market value of all goods and services produced within a nation by resources owned by residents and firms of that nation

Question 9

The value added at all production stages sums to the market value of the final good, and the value added for all final goods sums to GDP based on the income approach.

Accepted Answer

A) True 
 B)False

Question 10

Leakages include any diversion from the domestic spending stream.

Accepted Answer

A) True 
 B)False

Question 11

A decrease in GDP necessarily means that consumer welfare has decreased.

Accepted Answer

A) True 
 B)False

Question 12

If a firm's inventory decreases, the GDP counts the net decrease as a reduction in investment.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is reflected in GDP?

Accepted Answer

A)  the value of leisure time
B)  the value of illegal goods and services
C)  emotional and psychological well-being
D)  costs of cleaning up after pollution
E)  the value of house maintenance performed by homeowners

Question 14

Which of the following is the best example of an intermediate good or service?

Accepted Answer

A)  any good bought by a household, rather than a firm
B)  pizzas bought at a restaurant
C)  legal services hired by a public accounting firm
D)  sunglasses worn on a summer vacation in Florida
E)  a professional performance of "The Phantom of the Opera"

Question 15

In double-entry GDP accounting,

Accepted Answer

A)  the value of output produced must equal the value of resource payments generated in producing that output
B)  government is not counted because most of government spending is for transfer payments
C)  payments to resources must equal the value of goods sold to households
D)  inventories are counted twice, once as investment and once as output
E)  intermediate goods are counted twice, once as a type of output themselves and once as part of final output

Question 16

We can conclude that there has been inflation since the base year if the GDP price index in the current year is

Accepted Answer

A)  positive
B)  equal to zero
C)  less than 100
D)  greater than 100
E)  negative

Question 17

In order to convert nominal GDP to real GDP, we must divide

Accepted Answer

A)  real GDP by the price index
B)  nominal GDP by the price index
C)  the price index by nominal GDP
D)  the price index by real GDP
E)  nominal GDP by real GDP

Question 18

If real GDP in a particular year is $5,000 trillion and nominal GDP in that same year is $4,000 trillion, then the

Accepted Answer

A)  CPI is 125
B)  economic activity has decreased 20 percent
C)  GDP price index is 125
D)  GDP price index is 80
E)  economy has grown by 20 percent

Question 19

If a firm hires labor for $20,000, pays rent of $12,000, buys raw materials for $6,000, earns profits of $3,000, and sells its output for $41,000, the firm's value added is

Accepted Answer

A)  $0
B)  $15,000
C)  $35,000
D)  $38,000
E)  $41,000

Question 20

Nominal GDP is measured in

Accepted Answer

A)  current-year prices
B)  base-year prices
C)  real dollars
D)  quantity of goods produced
E)  hours of employment

Exam 7: Tracking the Us Economy

If U.S. net investment is positive, the nation's capital stock is growing.

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If real GDP in a particular year is $5,000 trillion and nominal GDP in that same year is $4,000 trillion, then the

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If a firm's inventory decreases, the GDP counts the net decrease as a reduction in investment.

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Use the following data to calculate GDP: consumption = $2,000; gross investment = $600; government purchases = $500; net exports = -$40; transfer payments = $340.

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A decrease in GDP necessarily means that consumer welfare has decreased.

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Nominal GDP is measured in

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The final market value of a good is

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Which of the following is the best example of an intermediate good or service?

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If a firm hires labor for $20,000, pays rent of $12,000, buys raw materials for $6,000, earns profits of $3,000, and sells its output for $41,000, the firm's value added is

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We can conclude that there has been inflation since the base year if the GDP price index in the current year is

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If real GDP increased by 3 percent, then

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In double-entry GDP accounting,

Correct AnswerverifiedShow Answer

The value added at all production stages sums to the market value of the final good, and the value added for all final goods sums to GDP based on the income approach.

Correct AnswerverifiedShow Answer

GDP is not a perfect measure of welfare because it

Correct AnswerverifiedShow Answer

Which of the following is a leakage from the circular flow?

Correct AnswerverifiedShow Answer

Which of the following is reflected in GDP?

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Which of the following expenditures are not included in the consumption component of GDP?

Correct AnswerverifiedShow Answer

Leakages include any diversion from the domestic spending stream.

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Gross Domestic Product measures the

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In order to convert nominal GDP to real GDP, we must divide

Correct AnswerverifiedShow Answer

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