The Measurement of Income, Prices, and Unemployment

Macroeconomics, 11e (Gordon)

1

Chapter 2

1

The Measurement of Income, Prices, and Unemployment

1

1)

1

Job openings are plentiful when the

1

A)

1

actual real GDP is above the natural real GDP.

1

B)

1

natural real GDP is above the actual real GDP.

1

C)

1

natural real GDP is increasing rapidly.

1

D)

1

None of the above.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

2)

1

The real income per capita is a measure of the

1

A)

1

well-being of every individual in the nation.

1

B)

1

well-being of the average individual in the nation.

1

C)

1

well-being of the average employed person in the nation.

1

D)

1

total well-being of the nation.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

3)

1

GDP can be measured by the

1

A)

1

total value of all sales in the economy.

1

B)

1

total market value of final goods and services produced in the economy.

1

C)

1

total value of all intermediate goods produced in the economy.

1

D)

1

net national product plus investment.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

4)

1

Assume a simple economy without a government and that saving and borrowing behavior is never observed. Then the value of

1

A)

1

production is equal to income.

1

B)

1

expenditures is less than the value of production.

1

C)

1

production is less than the value of expenditures.

1

D)

1

production is less than income.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

5)

1

Market prices are used to measure each final good included in the GDP. Therefore, the GDP ______well-being if ______.

1

A)

1

overstates; pollution results when the good is produced

1

B)

1

understates; pollution results when the good is produced

1

C)

1

overstates; rich people buy the good

1

D)

1

understates; poor people buy the good

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

6)

1

The value of steel sold to an automobile producer is ______directly included in the GDP because ______.

1

A)

1

always; it was produced during the current period

1

B)

1

never; to do so is to double count the value of the steel

1

C)

1

sometimes; the automobile may not be sold in the current period

1

D)

1

sometimes; the steel is sometimes not resold in the current period

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

7)

1

Which of the following is NOT an injection?

1

A)

1

the state of Illinois builds a new courthouse

1

B)

1

Kansas farmers sell 1 million bushels of wheat to Russia

1

C)

1

the Smithsonian Institute purchases Chris Evert Lloyd's tennis racket

1

D)

1

an accountant purchases a new personal computer for use in his office

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

Figure 2-1

1

8)

1

Assuming a closed economy (i.e., NX = O) the data in Figure 2-1 suggest that for each year after 1980

1

A)

1

private saving could have been either positive or negative.

1

B)

1

private saving was negative.

1

C)

1

private saving was positive.

1

D)

1

private saving equaled zero.

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

9)

1

The circular flow of income describes the

1

A)

1

flow of income from domestic firms to the nonproduction sector and back again.

1

B)

1

amount of money in the economy.

1

C)

1

sum of all injections into the economy.

1

D)

1

sum of all withdrawals from the economy.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

10)

1

Which of the following government outlays would be classified as a transfer payment?

1

A)

1

payments of veterans benefits under the GI bill

1

B)

1

interest on the federal debt

1

C)

1

subsidies to gold-mining firms

1

D)

1

All of these.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

11)

1

Suppose that steel produced this year is used to produce a car sold next year. The value of the steel ______included in GDP this year as ______.

1

A)

1

is; an intermediate good

1

B)

1

is not; an intermediate good

1

C)

1

is; an adjustment to inventories

1

D)

1

is not; an adjustment to inventories

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

12)

1

It is important to distinguish investment expenditures from consumption expenditures because

1

A)

1

households invest and business firms consume.

1

B)

1

business firms invest and households consume.

1

C)

1

investment, not consumption, increases the natural real GDP.

1

D)

1

B and C.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

13)

1

If nominal GDP increases, which of the following will always take place?

1

A)

1

Output will have increased but prices will have fallen or remained the same.

1

B)

1

Prices will have increased but output will have fallen or remained the same.

1

C)

1

Both output and prices will have increased.

1

D)

1

none of the above

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

14)

1

If real GDP has increased, which of the following statements is always true?

1

A)

1

Nominal GDP has increased.

1

B)

1

Output has increased.

1

C)

1

Prices have remained the same.

1

D)

1

Output might have decreased if prices have risen enough.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

15)

1

Suppose that nominal GDP were $1200 billion in 1990 and $2000 billion in 1995. The implicit GDP deflator was 1.00 in 1990 and 1.50 in 1995. From this we can infer that, between 1990 and 1995

1

A)

1

nominal GDP rose by 33%.

1

B)

1

prices rose by 66%.

1

C)

1

real GDP remained constant.

1

D)

1

real GDP rose by about 11%.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

16)

1

By definition, when the economy is in equilibrium it must be true that

1

A)

1

leakages equal injections.

1

B)

1

saving equals investment.

1

C)

1

government spending equals taxes.

1

D)

1

exports equal imports.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

17)

1

The difference between gross investment and net investment is

1

A)

1

equal to the difference between GDP and disposable income.

1

B)

1

equal to the government deficit.

1

C)

1

equal to capital consumption allowances.

1

D)

1

equal to the difference between gross and net exports.

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

18)

1

Changes in business inventories

1

A)

1

are included in gross but not in net investment.

1

B)

1

can either be positive or negative.

1

C)

1

are not included in GDP because they are not sold to anyone.

1

D)

1

are only partly included in GDP because part of these are holdings of intermediate goods.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

19)

1

Which of the following is not a leakage?

1

A)

1

import of a Toyota

1

B)

1

export of a Cadillac

1

C)

1

personal saving

1

D)

1

indirect business taxes

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

20)

1

An intermediate good is

1

A)

1

always counted when measuring GDP because it doesn't represent time spent in production of a final good or service.

1

B)

1

a good whose value is of neither a high grade nor a low grade.

1

C)

1

a good that is sold to the government and then redistributed to the poor.

1

D)

1

any good that is resold by its purchaser rather than used as is.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

21)

1

Which of the following would NOT be included in total final product (GDP)?

1

A)

1

welfare payments

1

B)

1

a used office building purchased by a high-tech firm

1

C)

1

semiconductors that are bought by a firm in Hong Kong

1

D)

1

Both A and B.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

22)

1

Which of the following sets of categories correctly describes the categories of nonconsumption injections?

1

A)

1

foreign imports, private domestic investment, government transfer payments

1

B)

1

capital consumption allowances, government transfer payments, net exports

1

C)

1

net exports, inventory accumulation, government transfer payments

1

D)

1

government purchases of goods and services, net exports, private domestic investment

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

23)

1

In order to determine personal income, what adjustments have to be made to national income?

1

A)

1

subtract undistributed corporate profits, corporate income tax, social security taxes, and then add government transfers and private interest payments

1

B)

1

subtract undistributed corporate profits, social security taxes, government transfers, and then add private interest payments

1

C)

1

subtract undistributed corporate profits, corporate consumption allowance, corporate income tax, social security tax and then add government transfers and private interest payments

1

D)

1

subtract corporate income tax and social security taxes and then add corporate dividends, government transfers, and private interest payments

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

24)

1

If real GDP for a given year is $2400 billion and nominal GDP is $2400

1

A)

1

this year is the base year for the GDP deflator.

1

B)

1

the GDP deflator for this year is 1.25.

1

C)

1

the GDP deflator for this year is 0.8.

1

D)

1

the GDP deflator for this year is 1.10.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

Table 2-1

1

25)

1

Refer to above Table 2-1. What is the level of Gross Domestic Product?

1

A)

1

2690

1

B)

1

3050

1

C)

1

2430

1

D)

1

3010

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

26)

1

Refer to above Table 2-1. What is the level of National Income?

1

A)

1

2630

1

B)

1

2420

1

C)

1

2660

1

D)

1

2430

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

27)

1

Refer to above Table 2-1. What is the level of Net Private Domestic Investment?

1

A)

1

420

1

B)

1

780

1

C)

1

380

1

D)

1

340

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

28)

1

Refer to above Table 2-1 What is the level of Corporate Profits?

1

A)

1

260

1

B)

1

180

1

C)

1

270

1

D)

1

170

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

29)

1

Refer to above Table 2-1 What is the level of Disposable Personal Income?

1

A)

1

2520

1

B)

1

1900

1

C)

1

2200

1

D)

1

2120

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

30)

1

Refer to above Table 2-1. What is the level of Personal Saving?

1

A)

1

100

1

B)

1

90

1

C)

1

80

1

D)

1

130

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

31)

1

Refer to above Table 2-1. What is the total amount of leakages?

1

A)

1

530

1

B)

1

1080

1

C)

1

970

1

D)

1

550

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

Figure 2-2

1

32)

1

Employing the data from Figure 2-2, income Y is equal to

1

A)

1

$3,000,000.

1

B)

1

$3,300,000.

1

C)

1

$3,600,000.

1

D)

1

$5,100,000.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

33)

1

Positive net exports are treated like domestic investment in the national income accounts because they are

1

A)

1

always part of inventories.

1

B)

1

fixed assets not intended for resale.

1

C)

1

they represent future flows of real income.

1

D)

1

not intended for resale.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

34)

1

Negative net exports represent reduced investment because

1

A)

1

payments for imports will be used by foreigners to buy domestic goods in the future.

1

B)

1

payments for exports will be used by foreigners to buy domestic goods in the future.

1

C)

1

payments for imports will be used by U.S. citizens to buy domestic goods in the future.

1

D)

1

None of the above.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

35)

1

When the dollar strengthens

1

A)

1

exports will increase and U.S. consumers benefit.

1

B)

1

imports will increase and U.S. consumers benefit.

1

C)

1

exports will decrease and U.S. exporters benefit.

1

D)

1

exports will increase and U.S. exporters gain.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

36)

1

When the dollar depreciates

1

A)

1

exports will increase and U.S. consumers benefit.

1

B)

1

imports will increase and U.S. consumers benefit.

1

C)

1

exports will decrease and U.S. exporters benefit.

1

D)

1

exports will increase and U.S. exporters gain.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

37)

1

Total expenditures as discussed by Gordon are

1

A)

1

C + I + G + M.

1

B)

1

C + S + T + X.

1

C)

1

C + I + S + X.

1

D)

1

C + I + G + X - M.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

38)

1

From the perspective of households the uses of income are

1

A)

1

taxes, saving, consumption of domestically produced and imported goods.

1

B)

1

taxes, investment, consumption of domestically produced and imported goods.

1

C)

1

taxes, saving, consumption, exports, and imports.

1

D)

1

None of the above.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

39)

1

The leakage and injections approach implies that deficit spending by the government must be financed by

1

A)

1

private investment less private savings plus net exports.

1

B)

1

private saving less private investment plus net exports.

1

C)

1

the trade deficit must always offset the government deficit.

1

D)

1

B and C.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

40)

1

The leakage and injections approach implies that a government deficit is financed by

1

A)

1

private saving less private investment plus net exports.

1

B)

1

private investment less private saving plus net exports.

1

C)

1

the trade deficit must always offset the government deficit.

1

D)

1

None of the above.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

41)

1

Which of the following components of the current account are included in GDP?

1

A)

1

net exports

1

B)

1

net foreign investment income

1

C)

1

net transfer payments sent to foreigners

1

D)

1

all of the above

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

42)

1

Which of the following is not one of the ways a budget surplus can be used?

1

A)

1

To allow private saving to fall without any need for a decline in total investment.

1

B)

1

To stimulate domestic investment.

1

C)

1

To reduce foreign investment.

1

D)

1

To increase the amount of borrowing from foreigners.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

43)

1

Which of the following is a way to finance a budget deficit?

1

A)

1

Increased private saving.

1

B)

1

Decreased domestic investment.

1

C)

1

Decreased foreign investment.

1

D)

1

All of the above.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

44)

1

The unemployment rate is a good measure of the social welfare or social distress because

1

A)

1

it includes discouraged workers.

1

B)

1

it distinguishes between part-time and full-time job seekers.

1

C)

1

it measures the "importance" of a job to each worker.

1

D)

1

None of the above.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

45)

1

The measured unemployment rate will be understated to the extent that

1

A)

1

unemployed workers become discouraged and drop out of the labor market.

1

B)

1

employed workers find that their opportunities for overtime are limited.

1

C)

1

full-time workers are reduced to half-time workers.

1

D)

1

All of these.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

46)

1

Indicate which of the following individuals would be included in the labor force as defined by the Census Bureau.

1

A)

1

a teenager looking for a part-time job

1

B)

1

a man waiting for recall from a layoff

1

C)

1

a woman who has accepted a new job but has not yet begun working

1

D)

1

All of the above would be included in the labor force.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

47)

1

Actual real GDP this year is expected to exceed last year's by two percent, while the annual growth rate of natural real GDP is three percent. This is enough to lead us to expect that this year's unemployment rate will be

1

A)

1

below last year's and below the natural rate of unemployment.

1

B)

1

below last year's but still above the natural rate of unemployment.

1

C)

1

below last year's.

1

D)

1

above last year's.

1

E)

1

above last year's and above the natural rate of unemployment.

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

48)

1

To measure productivity in an economy, we compute the actual real GDP and then divide it by

1

A)

1

the number of years over which it was produced.

1

B)

1

the amount of labor that went into producing it.

1

C)

1

the capital stock in existence at the time.

1

D)

1

the value of the capital stock that was used up in the process of production.

1

E)

1

the natural real GDP in the same period.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

49)

1

In the simple circular flow model containing just households and business firms, all income is received by households in exchange for

1

A)

1

consumer expenditures.

1

B)

1

wages.

1

C)

1

labor services.

1

D)

1

product.

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

50)

1

In the simple circular flow model containing just households and business firms, the entire product flows to ______in exchange for ______.

1

A)

1

business firms, labor services

1

B)

1

business firms, wages

1

C)

1

households, consumer expenditures

1

D)

1

households, labor services

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

51)

1

Which of the following is not a "flow" variable?

1

A)

1

government debt

1

B)

1

consumption expenditure

1

C)

1

labor services

1

D)

1

income

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

52)

1

In calculating GDP, "transfer payments" are

1

A)

1

included because they are re-valuations of existing wealth.

1

B)

1

excluded because no goods or services were produced in exchange for them.

1

C)

1

included because they are payments for labor services.

1

D)

1

excluded because used goods already counted the year they were produced.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

53)

1

A restaurant purchases a package of sandwich buns for 50 cents. The buns are ______good in this case, and thus its purchase ______a transaction that is included in GDP.

1

A)

1

a final, is

1

B)

1

a final, is not

1

C)

1

an intermediate, is

1

D)

1

an intermediate, is not

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

54)

1

A family purchases a package of sandwich buns at a supermarket. Are those buns considered a "final" good?

1

A)

1

No, because they are an intermediate ingredient in the actual final good: sandwiches

1

B)

1

Yes, if the family eats them and does not sell the sandwiches made from them.

1

C)

1

No, because the supermarket bought the finished buns, so they are "used" goods by the time the family buys them.

1

D)

1

Yes, for so long as it is sold on the market it is a final good.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

55)

1

A farmer sells raw milk for 50 cents to a dairy, who sells cheese made from it for $1.50 to a grocery wholesaler, who sells it for $1.90 to a supermarket, who sells it to the final consumer for $2.19. These transactions increase the GDP by

1

A)

1

$0.50 + $1.00 + $0.40 + $0.29 = $2.19.

1

B)

1

$0.50 + $1.00 + $1.90 + $2.19 = $5.59.

1

C)

1

$0.50 + $1.00 = $1.50.

1

D)

1

$2.19 - $1.50 = $0.69.

1

E)

1

$2.19 - $0.50 = $1.69.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

56)

1

Adding up all transactions in the economy ______"double counting" and thus produces ______measure of GDP.

1

A)

1

avoids, a proper

1

B)

1

avoids, an improper

1

C)

1

results in, a proper

1

D)

1

results in, an improper

1

Answer:

1

D

1

Question Status:

1

Previous Edition

1

57)

1

The final goods businesses keep for themselves are called

1

A)

1

assets.

1

B)

1

savings.

1

C)

1

investment.

1

D)

1

sunk costs.

1

E)

1

intermediate goods.

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

58)

1

Cans of soup purchased by supermarkets but not sold to individuals in the current period

1

A)

1

are considered intermediate goods, yet still count in the GDP.

1

B)

1

are considered intermediate goods, thus do not count in the GDP.

1

C)

1

are considered investment goods and do count in the GDP.

1

D)

1

are considered investment goods and thus do not count in the GDP.

1

E)

1

are considered consumption goods but do not yet count in the GDP.

1

Answer:

1

C

1

Question Status:

1

Previous Edition

1

59)

1

This national income accounting rule guarantees that total product exactly equals total expenditure on that product:

1

A)

1

changes in inventories count as expenditures.

1

B)

1

changes in inventories do not count as expenditures.

1

C)

1

depreciation of capital is subtracted from investment.

1

D)

1

total product is the sum of values added.

1

Answer:

1

A

1

Question Status:

1

Previous Edition

1

60)

1

In the second circular-flow model of Chapter 2, households have two uses for their total income:

1

A)

1

consumption and investment.

1

B)

1

consumption and saving.

1

C)

1

saving and investment.

1

D)

1

saving and payment of taxes.

1

E)

1

consumption and payment of taxes.

1

Answer:

1

B

1

Question Status:

1

Previous Edition

1

61)

1

The condition in circular-flow models whereby firms purchase all the goods not purchased by households is that

1

A)

1

inventory investment is zero.

1

B)

1

saving is zero.

1

C)

1

fixed investment is zero.

1

D)

1

consumption equals investment.

1

E)

1

investment equals saving.

1

Answer:

1

E

1

Question Status:

1

Previous Edition

1

62)

1

An individual buys shares in a mutual fund, which uses the proceeds to buy corporate stocks and bonds. This is part of the process by which

1

A)

1

total product becomes unequal to total expenditures.

1

B)

1

firms release goods to make them available to consumers.

1

C)