Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The value of all final goods and services produced during a given time period measures a nation's 1)A) consumer price index. B) net national product.C) net exports. D) gross domestic product.

Answer: D

2) Gross domestic product calculations count only final goods and services because 2)A) it is difficult to measure the prices of intermediate goods produced.B) one cannot calculate the quantities of intermediate goods produced.C) these are the only goods and services that are produced in an economy.D) counting all goods and services would lead to double-counting of many activities.

Answer: D

3) "Final goods and services" are those that are 3)A) double counted in the calculation of GDP.B) used in the production of other goods and services.C) sold to the ultimate or final purchasers.D) produced outside of the United States.

Answer: C

4) If an economy produced 10 pizzas at $20 each and fifteen gallons of root beer at $5 each, the totalvalue of these goods and services would be

4)

A) $75. B) $200. C) $275. D) $2,750.Answer: C

5) Which of the following is an example of an intermediate good? 5)A) the blueberries you buy to bake yourself some muffinsB) the lumber you buy to build a house for your dogC) the chocolate chips you purchase to make cookies to sell at a bake sale for your kids' schoolD) the tortillas you buy to make yourself a burrito for lunch

Answer: C

6) By not counting the value of intermediate goods when calculating GDP, you avoid 6)A) double counting. B) black-market accounting.C) deficit spending. D) year-to-date calculations.

Answer: A

7) Which of the following would NOT be counted in 2010's GDP? 7)A) the value of a laser printer manufactured in 2010 but not sold in 2010B) the value of a 2006 convertible you purchase from a dealer in 2010C) the 2010 salary of a used furniture salespersonD) the commissions earned by a sales associate in selling home theater systems built prior to

2010Answer: B

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8) If, in 2010, an economy's total production was 50 bushels of soybeans at $20 each and 40 gallons ofhoney at $15 per gallon, its gross domestic product would be

8)

A) $400. B) $600. C) $1,000. D) $1,600.Answer: D

9) A rancher raises alpaca. Once a year, he shears them and sells the raw wool to a processor whospins it into yarn. The yarn is then sold to a mill which produces and sells alpaca sweaters. Incalculating GDP we would count

9)

A) only the raw wool and the yarn. B) only the sweaters.C) the raw wool, the yarn and the sweaters. D) only the yarn and the sweaters.

Answer: B

10) The total market value of all final goods and services produced by resources owned by a country,regardless of where production takes place is

10)

A) gross national product. B) gross domestic product.C) gross private domestic investment. D) national income.

Answer: A

11) A country's GNP will definitely exceed its GDP if ________ foreign companies produce in thecountry and ________ of the country's companies produce abroad.

11)

A) many; none B) no; none C) no; many D) many; manyAnswer: C

12) The value of all motorcycles produced by Harley Davidson in the United States is 12)A) included in the U.S. GNP but not the U.S. GDP.B) included in both the U.S. GDP and GNP.C) not included in either the U.S. GDP or GNP.D) included in the U.S. GDP but not the U.S. GNP.

Answer: B

13) Which of the following is counted in the GNP of the United States? 13)A) the interest earned by a Brazilian bank on loans to a business firm located in the U.S.B) the profit earned by a restaurant located in the U.S. but owned by a Guatemalan companyC) the value of services that are produced by state and local governments in the United StatesD) the wage of a foreign citizen who works in the United States for a U.S. firm

Answer: C

14) The value of what Burger King produces in France is included in the United States ________ and inthe French ________.

14)

A) GNP; GDP B) GDP; GDP C) GNP; GNP D) GDP; GNPAnswer: A

15) Profits earned in a foreign country by U.S.-owned companies are included in 15)A) neither the United States GDP nor GNP. B) the United States GDP but not GNP.C) the United States GNP but not GDP. D) both the United States GDP and GNP.

Answer: C

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16) The GDP of the United States in 2008 was around $14 trillion. This means 16)A) that the value of output produced in the U.S. in 2008 was around $14 trillion.B) that total income in the U.S. in 2008 was more than $14 trillion.C) that the value of output produced by U.S.-owned resources was less than $14 trillion.D) that total spending in the U.S. in 2008 was more than $14 trillion.

Answer: A

17) Which of the following is NOT a component of gross domestic product? 17)A) net exportsB) purchases by consumers of used goodsC) purchases by consumers of finished goodsD) government purchases

Answer: B

18) Which prices are used to measure goods and services in calculating GDP? 18)A) projected prices B) past year prices C) current prices D) average prices

Answer: C

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

19) GNP measures the total income of everyone and the total spending by everyone in the economy. 19)Answer: True False

20) Total spending on final goods and services in the economy can sometimes be less than total income. 20)Answer: True False

21) The income of U.S. citizens working abroad counts in U.S. GNP. 21)Answer: True False

22) Stock market transactions are part of GDP. 22)Answer: True False

23) Value added is the sum of the value of goods as they leave a stage of production and cost of thegoods as they entered that stage of production.

23)

Answer: True False

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

24) The expenditure approach to GDP is shown by which of the following equations? 24)A) GDP = C + I + G + EX - IM B) GDP = C + I + G + IM - EXC) GDP = C + I + G - EX - IM D) GDP = C + I + G + EX + IM

Answer: A

25) The largest component of GDP is 25)A) consumption expenditures. B) government spending.C) private investment expenditures. D) net exports.

Answer: A

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Refer to the information provided in Table 6.1 below to answer the questions that follow.

Table 6.1$Billions

Durable goodsNonresidential investmentFederal purchases of goodsExportsState and local purchases of goodsResidential investmentServicesImportsChange in business inventoriesNondurable goods

600400350300100150900100-40800

26) Refer to Table 6.1. Personal consumption expenditures in billions of dollars are 26)A) 1,400. B) 1,500. C) 1,700. D) 2,300.

Answer: D

27) Refer to Table 6.1. The value for gross private domestic investment in billions of dollars is 27)A) 360. B) 400. C) 440. D) 510.

Answer: D

28) Refer to Table 6.1. The value for net exports in billions of dollars is 28)A) -200. B) 100. C) 200. D) 400.

Answer: C

29) Refer to Table 6.1. The value of gross domestic product in billions of dollars is 29)A) 3,190. B) 3,430. C) 3,460. D) 3,650.

Answer: C

30) Refer to Table 6.1. The value of government spending in billions of dollars is 30)A) 100. B) 250. C) 350. D) 450.

Answer: D

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Refer to the information provided in Table 6.2 below to answer the questions that follow.

Table 6.2$Billions

Federal purchases of goodsServicesImportsChange in business inventoriesDurable goodsNondurable goodsExportsResidential investmentState and local purchasesNonresidential investment

1,400 700 500 100 400 600 300 300 600 700

31) Refer to Table 6.2. Personal consumption expenditures in billions of dollars are 31)A) 1,000. B) 1,100. C) 1,300. D) 1,700.

Answer: D

32) Refer to Table 6.2. The value for gross private domestic investment in billions of dollars is 32)A) 800. B) 900. C) 1,000. D) 1,100.

Answer: D

33) Refer to Table 6.2. The value for net exports in billions of dollars is 33)A) 800. B) 200. C) -200. D) -500.

Answer: C

34) Refer to Table 6.2. The value for gross domestic product in billions of dollars is 34)A) 3,800. B) 4,000. C) 4,500. D) 4,600.

Answer: D

35) Refer to Table 6.2. The value of government spending in billions of dollars is 35)A) 800. B) 1,400. C) 2,000. D) 2,300.

Answer: C

36) A company produced 12 motorcycles in 2010. The company sold 8 in 2010 and added 4 to itsinventories. The market value of the motorcycles in 2010 was $1,000 per unit. What is the value ofthis company's output that will be included in the 2010 GDP?

36)

A) $4,000 B) $8,000 C) $12,000 D) $16,000Answer: C

37) A radiologist buys a new x-ray machine from General Electric to use in her medical practice. Thisx-ray machine is included in GDP as

37)

A) a durable consumption good.B) a nondurable consumption good.C) a service.D) part of gross private domestic investment.

Answer: D

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38) GDP minus final sales gives a measure of the 38)A) change in business inventories. B) non-residential investment.C) GNP. D) value of intermediate goods.

Answer: A

39) In 2010 final sales equal $400 billion, and the change in business inventories is $100 billion. GDP in2010 is

39)

A) $100 billion. B) $300 billion. C) $400 billion. D) $500 billion.Answer: D

40) In 2010 final sales equal $500 billion and the change in business inventories is -$40 billion. GDP in2010 is

40)

A) -$40 billion. B) $460 billion. C) $500 billion. D) $540 billion.Answer: B

41) In 2010 the change in business inventories is -$30 billion and GDP is $160 billion. Final sales in 2010are

41)

A) $100 billion. B) $130 billion. C) $160 billion. D) $190 billion.Answer: D

42) In 2010, GDP was exactly equal to final sales. This implies that 42)A) GDP did not grow that year compared to the year before.B) there was accumulation of inventories that year.C) there was no change in inventories that year.D) there was a decline in inventories that year.

Answer: C

43) If the change in business inventories is positive, then final sales are 43)A) zero. B) equal to GDP.C) greater than GDP. D) less than GDP.

Answer: D

44) If in a year there is a negative inventory investment, then final sales 44)A) equal GDP. B) exceed GDP.C) are zero. D) are less than GDP.

Answer: B

45) Gross investment minus depreciation equals 45)A) change in business inventories. B) net investment.C) GDP. D) GNP.

Answer: B

46) If net investment is positive, then 46)A) gross investment is greater than depreciation.B) gross investment is less than depreciation.C) depreciation is negative.D) gross investment equals depreciation.

Answer: A

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47) Suppose that net investment in 2010 was $90 billion and depreciation was $27 billion. Grossinvestment in 2010 was

47)

A) -$27 billion. B) $63 billion. C) $90 billion. D) $117 billion.Answer: D

48) Gross investment is 48)A) the total value of all capital goods newly produced in a given period.B) net investment divided by depreciation.C) GDP minus depreciation.D) GDP minus GNP.

Answer: A

49) Gross investment minus depreciation is equal to 49)A) the value of durable goods. B) gross national product.C) non-residential investment. D) the change in capital stock.

Answer: D

50) Gross investment minus net investment is 50)A) zero. B) depreciation.C) total investment. D) the change in inventories.

Answer: B

51) The yearly value of worn out machinery is called 51)A) net investment. B) capital gains.C) depreciation. D) non-durable goods.

Answer: C

52) If net investment in 2011 is $225 billion and gross investment in 2011 is $350 billion, depreciation in2011 is

52)

A) $125 billion. B) $175 billion. C) $225 billion. D) $575 billion.Answer: A

53) If net investment in 2010 is $550 billion and gross investment in 2010 is $900 billion, depreciation in2010 is

53)

A) $900 billion. B) $550 billion. C) $450 billion. D) $350 billion.Answer: D

54) If gross investment in 2011 is $750 billion and depreciation in 2011 is $750 billion, net investment in2011 is

54)

A) -$750 billion. B) zero. C) $750 billion. D) $1,500 billion.Answer: B

55) If gross investment in 2010 is $525 billion and depreciation in 2010 is $650 billion, net investment in2010 is

55)

A) -$650 billion. B) -$125 billion. C) $125 billion. D) $1,175 billion.Answer: B

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56) Imports equal 56)A) exports - net exports. B) 1 - exports.C) net exports/exports. D) exports + (exports - imports).

Answer: A

57) When calculating GDP, ________ are added and ________ are subtracted. 57)A) imports; net exports B) imports; exportsC) exports; net exports D) exports; imports

Answer: D

58) If the value of net exports is positive, then 58)A) imports exceed exports. B) exports equal imports.C) exports exceed imports. D) imports are zero.

Answer: C

59) Compensation of employees is 59)A) the largest income component of GDP. B) not included in GDP.C) the smallest income component of GDP. D) an expenditure component of GDP.

Answer: A

60) What should be added to national income to calculate GNP? 60)A) depreciationB) indirect taxesC) net factor payments to the rest of the worldD) personal income taxes

Answer: A

61) Proprietors' income includes all of the following EXCEPT 61)A) the income of partnerships.B) the income of unincorporated businesses.C) the income of sole proprietorships.D) the income of all businesses?incorporated and unincorporated.

Answer: D

62) The interest on loans paid by businesses is called 62)A) depreciation. B) net interest.C) net factor payments. D) retained earnings.

Answer: B

63) Interest paid by businesses is 63)A) not counted in GDP but is counted in GNP because it is paid by U.S. businesses.B) not counted in GDP because it is not assumed to flow from the production of goods and

services.C) included in both GDP and national income.D) counted in national income, but not in GDP.

Answer: C

64) Indirect taxes include all of the following EXCEPT 64)A) customs duties. B) license fees. C) sales taxes. D) property taxes.

Answer: D

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65) Depreciation is 65)A) added to GDP to get gross investment.B) subtracted from net investment to obtain gross investment.C) the difference between exports and imports.D) added to NNP to get GNP.

Answer: D

Refer to the information provided in Table 6.3 below to answer the questions that follow.

Table 6.3

66) Refer to Table 6.3. The value for national income in billions of dollars is 66)A) 710. B) 750. C) 800. D) 825.

Answer: D

67) Refer to Table 6.3. The value for gross domestic product in billions of dollars is 67)A) 720. B) 800. C) 920. D) 975.

Answer: C

68) Refer to Table 6.3. The value of net factor payments to the rest of the world is 68)A) 45. B) 5. C) -5. D) -45.

Answer: B

69) Refer to Table 6.3. The value of disposable income 69)A) is 625.B) is 710.C) is 800.D) cannot be calculated given the information in Table 6.3.

Answer: D

70) If receipts of factor income from the rest of the world are less than payments of factor income to therest of the world, then

70)

A) GDP is greater than GNP. B) GNP is greater than GDP.C) GNP equals NNP. D) GDP equals GNP.

Answer: A

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Refer to the information provided in Table 6.4 below to answer the questions that follow.

Table 6.4$Billions

DepreciationReceipts of factor income from the rest of the worldGovernment purchasesImportsPayments of factor income to the rest of the worldNet private domestic investmentPersonal income taxesPersonal consumption expendituresDividendsExportsAmount of national income not going to households

2040150504016080700107030

71) Refer to Table 6.4. The value for GDP in billions of dollars is 71)A) 950. B) 1,030. C) 1,050. D) 1,110.

Answer: C

72) Refer to Table 6.4. The value for GNP in billions of dollars is 72)A) 990. B) 1,050. C) 1,080. D) 1,200.

Answer: B

73) Refer to Table 6.4. The value for NNP in billions of dollars is 73)A) 970. B) 1,030. C) 1,060. D) 1,200.

Answer: B

74) Refer to Table 6.4. The value for national income in billions of dollars is 74)A) 970. B) 1,030. C) 1,060. D) 1,200.

Answer: B

75) Refer to Table 6.4. The value for personal income in billions of dollars is 75)A) 970. B) 1,000. C) 1,050. D) 1,110.

Answer: B

76) Refer to Table 6.4. The value for disposable personal income in billions of dollars is 76)A) 890. B) 920. C) 970. D) 1,020.

Answer: B

77) If GNP is $625 billion, receipts of factor income from the rest of the world are $25 billion, andpayments of factor income to the rest of the world are $50 billion, then GDP is

77)

A) $550 billion. B) $600 billion. C) $650 billion. D) $700 billion.Answer: C

78) If GNP is $500 billion, receipts of factor income from the rest of the world are $15 billion, andpayments of factor income to the rest of the world are $5 billion, then GDP is

78)

A) $480 billion. B) $490 billion. C) $510 billion. D) $520 billion.Answer: B

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79) If NNP is $175 billion and depreciation is $20 billion, then GDP 79)A) is $155 billion.B) is $195 billion.C) is $215 billion.D) cannot be determined from this information.

Answer: D

80) If GDP is $400 billion, depreciation is $100 billion, and net factor income from the rest of the worldis -$60 billion, then net national product is

80)

A) $240 billion. B) $300 billion. C) $360 billion. D) $440 billion.Answer: A

81) If GNP is $650 billion and depreciation is $70 billion, then net national product is 81)A) $560 billion. B) $580 billion. C) $610 billion. D) $720 billion.

Answer: B

82) If GNP is $625 billion and depreciation is $125 billion, then net national product is 82)A) $5 billion. B) $500 billion. C) $700 billion. D) $750 billion.

Answer: B

83) If depreciation equals zero and retained earnings equal $25 billion, then 83)A) GNP is greater than GDP by $25 billion.B) GNP is less than net national product by $25 billion.C) GNP equals net national product.D) net national product is less than GNP by $25 billion.

Answer: C

84) GNP minus depreciation is 84)A) national income. B) NNP.C) GDP. D) retained earnings.

Answer: B

85) The total income of the country is 85)A) production income. B) personal income.C) national income. D) net national product.

Answer: C

86) National income minus the amount of national income not going to households is 86)A) personal income. B) disposable income.C) interest income. D) proprietor's income.

Answer: A

87) If national income is $400 billion, personal income is $350 billion, personal taxes are $100 billion,then disposable income equals

87)

A) $450 billion. B) $300 billion. C) $250 billion. D) -$50 billion.Answer: C

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88) Which of the following is added to personal income to get national income? 88)A) depreciation B) personal interest incomeC) personal taxes D) retained earnings

Answer: D

89) National income 89)A) may be greater than or less than personal income.B) will always equal personal income.C) is always less than personal income.D) is always greater than personal income.

Answer: A

90) If personal income is $700 billion and personal income taxes are $140 billion, the value ofdisposable personal income is

90)

A) $560 billion. B) $630 billion. C) $640 billion. D) $840 billion.Answer: A

91) If personal saving is -$40 billion and disposable personal income is $430 billion, then personalconsumption spending is

91)

A) $40 billion. B) $390 billion. C) $410 billion. D) $470 billion.Answer: D

92) The percentage of disposable personal income that is saved is the 92)A) personal saving rate. B) MPC.C) MPS. D) personal investment rate.

Answer: A

93) If disposable personal income is $500 billion and personal saving is $15 billion, the personal savingrate is

93)

A) 1.5%. B) 3%. C) 7.5%. D) 15%.Answer: B

94) If the personal saving rate is 20% and personal saving is $20 billion, the value of personaldisposable income is

94)

A) $4 billion. B) $20 billion. C) $100 billion. D) $400 billion.Answer: C

95) Saving rates tend to rise during ________ and fall during ________. 95)A) recessions; contractions B) boom times; expansionsC) recessions; expansions D) boom times; recessions

Answer: C

96) Related to the Economics in Practice on p. 427: The value of the fees charged by eBay to sellers whouse eBay is

96)

A) only counted in U.S. GDP if the seller is in the U.S.B) never counted in U.S. GDPC) only counted in U.S. GDP if the product being sold is new.D) counted in U.S. GDP.

Answer: D

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97) Related to the Economics in Practice on p. 427: If a Harley Davidson dealer in Chicago sells a newlymanufactured Harley motorcycle on eBay to a customer in Tokyo, Japan, the value of themotorcycle is

97)

A) not counted in U.S. GDP because it was sold to a foreign customer.B) counted in Japanese GDP.C) counted in U.S. GDP.D) counted in U.S. GDP and Japanese GNP.

Answer: C

98) Related to the Economics in Practice on p. 431: The National Income and Product Accounts (NIPAs)were originally developed for the Commerce Department

98)

A) during the 1970s following the public distrust of the government from the Watergate scandal.B) during the Reconstruction era following the Civil War.C) during the era of the Great Depression in the 1930s.D) at the onset of the Cold War in the 1950s.

Answer: C

99) Related to the Economics in Practice on p. 431: The economist most closely associated with thedevelopment of the National Income and Product Accounts (NIPAs) is

99)

A) David Ricardo. B) Alan Greenspan.C) Simon Kuznets. D) John Maynard Keynes.

Answer: C

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

100) Transfer payments are subtracted from national income to get to personal income. 100)Answer: True False

101) If investment is less than depreciation, the capital stock decreases. 101)Answer: True False

102) Depreciation is included in GDP, GNP and NNP. 102)Answer: True False

103) Final sales minus changes in inventories equals GDP. 103)Answer: True False

104) New automobiles count as consumer durables. 104)Answer: True False

105) Taco Bell opens a branch in Iceland. The sales of the restaurant enter the U.S. GNP and theIcelandic GDP.

105)

Answer: True False

106) Consumers can spend their entire disposable income. 106)Answer: True False

107) The difference between GNP and NNP is depreciation. 107)Answer: True False

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108) Disposable personal income is personal income plus personal taxes. 108)Answer: True False

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

109) When GDP is measured in "current prices" it is known as the 109)A) real GNP. B) nominal GNP. C) real GDP. D) nominal GDP.

Answer: D

110) When GDP is measured using "adjustments for price changes" it is known as the 110)A) real GDP. B) nominal GNP. C) nominal GDP. D) real GNP.

Answer: A

111) If the economy grows at 10 percent from year 1 to year 2 and real GDP is 300 in year 1, what willreal GDP be in year 2?

111)

A) 10 B) 300 C) 315 D) 330Answer: D

112) When differences between nominal GDP and real GDP result due to price changes and nothing elseis compared, an index called the ________ is created.

112)

A) GDP deflator B) index of leading indicatorsC) inflation index D) consumer price index

Answer: A

113) If real GDP in 2011 using 2010 prices is higher than nominal GDP of 2011, then 113)A) prices in 2011 are higher than prices in 2010.B) real GDP in 2011 is smaller than real GDP in 2010.C) prices in 2011 are lower than prices in 2010.D) nominal GDP in 2011 equals nominal GDP in 2010.

Answer: C

114) If real GDP in 2011 using 2010 prices is equal to the nominal GDP of 2011, then 114)A) the price level has not changed.B) prices in 2011 are higher than prices in the base year.C) prices in 2011 are lower than prices in the base year.D) real GDP in 2011 is larger than real GDP in 2010.

Answer: A

Refer to the information provided in Table 6.5 below to answer the questions that follow.

Table 6.5

Year 1Production Year 2 Year 3 Year 1

Prices Year 2 Year 3

Good X 50 50 60 $1.00 $1.20 $1.20Good Y 100 120 140 $0.60 $0.60 $1.00

115) Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. Thevalue for this economy's nominal GDP in year 1 is

115)

A) $110. B) $130. C) $140. D) $160.Answer: A

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116) Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. Thevalue for this economy's nominal GDP in year 3 is

116)

A) $144. B) $160. C) $180. D) $212.Answer: D

117) Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. Thevalue for this economy's nominal GDP in year 2 is

117)

A) $120. B) $122. C) $132. D) $140.Answer: C

118) Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. If year1 is the base year, the value for this economy's real GDP in year 2 is

118)

A) $120. B) $122. C) $132. D) $140.Answer: B

119) Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. If year1 is the base year, the value for this economy's GDP deflator in year 1 is

119)

A) 98. B) 100. C) 112. D) 120.Answer: B

120) Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. If year1 is the base year, the value for this economy's GDP deflator in year 2 is

120)

A) 84.5. B) 92.4. C) 105.0. D) 108.2.Answer: D

121) Refer to Table 6.5. Assume that this economy produces only two goods Good X and Good Y. If year2 is the base year, the value for this economy's real GDP in year 3 is

121)

A) $270. B) $178. C) $156. D) $132.Answer: C

122) The ratio of nominal GDP to real GDP multiplied by 100 is the 122)A) GDP deflator. B) NNP.C) national income. D) same as depreciation.

Answer: A

123) If nominal GDP is $18 trillion and real GDP is $3 trillion, the GDP deflator is 123)A) 6. B) 21. C) 54. D) 600.

Answer: D

124) If the GDP deflator is less than 100, then 124)A) prices decreased by more than half between the current and the base years.B) nominal GDP equals real GDP.C) nominal GDP is greater than real GDP.D) nominal GDP is lower than real GDP.

Answer: D

125) The GDP deflator in year 4 is 120 and the GDP deflator in year 5 is 130. The rate of inflationbetween years 4 and 5 is

125)

A) -10%. B) 7.7%. C) 8.33%. D) 10%.Answer: C

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126) The GDP deflator in year 3 is 135 using year 1 as a base year. This means that, on average, the priceof goods and services is

126)

A) 17.5% higher in year 1 than in year 3. B) 35% higher in year 3 than in year 1.C) 17.5% higher in year 3 than in year 1. D) 135% higher in year 3 than in year 1.

Answer: B

127) The GDP deflator in year 3 is 85 using year 1 as a base year. This means that, on average, the priceof goods and services is

127)

A) 15% higher in year 1 than in year 3. B) 15% higher in year 3 than in year 1.C) 7.5% higher in year 1 than in year 3. D) 7.5% higher in year 3 than in year 1.

Answer: A

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

128) If in the same period output doubles and the price level doubles, nominal GDP doubles. 128)Answer: True False

129) A GDP deflator is real GDP times nominal GDP times 100. 129)Answer: True False

130) If the GDP deflator next year is greater than the GDP deflator this year, then the price level hasfallen.

130)

Answer: True False

131) GDP measured in base year prices is nominal GDP. 131)Answer: True False

132) If nominal GDP falls, then so must real GDP. 132)Answer: True False

133) If real GDP falls, then so must nominal GDP. 133)Answer: True False

134) If real GDP decreased during a year, then output must have decreased. 134)Answer: True False

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

135) One of the flaws of GDP is that it 135)A) ignores transactions that do not take place in organized markets.B) includes only transactions that take place in formal businesses.C) includes measures of the underground economy.D) includes measures of changes of life associated with producing output.

Answer: A

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136) GDP understates the value of output produced by an economy because it 136)A) excludes the value of the wages and fringe benefits of government employees.B) includes environmental degradation caused by increased output production.C) excludes value added from the underground economy, such as tips taken "under the table."D) includes transactions that do not take place in organized markets, such as home-cooked

meals.Answer: C

137) Per capita gross national income (GNI) increases when 137)A) GNI does not change and the population increases.B) GNI increases and the population does not change.C) GNI and the population decrease at the same rate.D) GNI and the population increase at the same rate.

Answer: B

138) GNP converted into dollars using an average exchange rate over several years adjusted for rates ofinflation is

138)

A) real national product. B) net national product.C) gross domestic product. D) gross national income.

Answer: D

139) The year chosen for the weights in a fixed weight procedure is known as the 139)A) fiscal year. B) base year. C) bilateral year. D) nominal year.

Answer: B

140) Fixed weight indexes 140)A) generally become less accurate the farther in time from the base year.B) account for responses to supply shifts.C) account for response to demand shifts.D) account for the introduction of new types of goods and services.

Answer: A

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

141) Not all economic activities in the economy are included in the GDP. 141)Answer: True False

142) The costs of pollution are excluded from the value of final sales before calculating GDP. 142)Answer: True False

143) A strength in the concept of GDP is that it ignores income distribution. 143)Answer: True False

144) Production in the underground economy is reflected in GDP. 144)Answer: True False

145) Fixed weight indexes account for new goods. 145)Answer: True False

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