Deck 10: Gross Domestic Product and Economic Growth

Question 1

Gross domestic product is the market value of all final goods and services produced outside of a country in a given year.

Answer 1

False

Question 2

Unemployment compensation and other transfer payments that the government makes to individuals are not included in the calculation of GDP because they do not directly generate current output.

Answer 2

True

Question 3

When derived by the expenditures approach, GDP equals the sum of personal saving, gross investment, government transfer payments, and net exports of goods and services.

Answer 3

False

Question 4

GDP ignores the underground economy in which unreported barter and cash transactions take place outside recorded market channels.

Question 5

Real GDP is based on the prices existing in the year in which the goods and services were produced. Nominal GDP is real GDP adjusted to eliminate changes in prices.

Question 6

The broadest price index to calculate real GDP is the GDP deflator, which equals the ratio of the cost of buying all final goods and services in the current year to the cost of buying the identical goods at base-year prices.

Question 7

Suppose that from 2008 to 2013, nominal GDP increased from $7,000 billion to $9,000 billion. However, the GDP deflator increased from 100 to 115 over this period. We can conclude that real GDP increased over this period.

Question 8

Suppose that from 2008 to 2013, nominal GDP increased from $7,000 billion to $8,000 billion. However, the GDP deflator increased from 100 to 115 over this period. We can conclude that real GDP increased over this period.

Question 9

Suppose that in the year 2007 real GDP is $9,000 billion and in 2008 real GDP is $9,300 billion. Hence, the rate of growth in real GDP between 2007 and 2008 is 3.3 percent.

Question 10

Suppose that in the year 2011 real GDP is $9,000 and in 2012 real GDP is $9,200 billion. Hence, the rate of growth in real GDP between 2007 and 2008 is 3.8 percent.

Question 11

According to the "rule of 70," if real GDP grows at 4 percent a year it would take about 14 years for the real GDP to double.

Question 12

Among the stimulants to long-run economic growth are the incentives that induce individuals to work and firms to invest in production technology, within the limits imposed by demographics and the rate of technological advance.

Question 13

An increase in the availability of natural resources, physical capital, and human capital fosters growth for an economy.

Question 14

The human capital of a nation includes investment in roads, dams, bridges, and communications.

Question 15

Economists widely agree that there is a direct relation between the share of an economy's GDP that is devoted to investment goods and the productivity gains it realizes over time.

Question 16

A reduction in the price of energy would likely retard the economy's rate of growth.

Question 17

A policy of increasing domestic consumption would likely speed up economic growth by boosting productivity.

Question 18

Barriers to international trade tend to inhibit the efficient allocation of production across industries and thus allow inefficient industries to continue using labor and capital resources that could be used more productively in other sectors.

Question 19

The use of industrial policy is intended to encourage the development of emerging "sunrise" industries, such as high technology, by granting them subsidies.

Question 20

Critics cite Japan as a nation that was unsuccessful in achieving rapid growth following World War II as a result of industrial policy.

Question 21

Technology in the Information Age has the potential to increase economic growth by lowering firms' costs and creating e-commerce opportunities.

Question 22

Nominal GDP is measured in final prices and real GDP is measured in intermediate prices.

Question 23

GDP is calculated as the sum of intermediate goods and final goods.

Question 24

Real GDP is a better measure of the economy's real output than nominal GDP.

Question 25

If investors purchased $100,000 of General Electric stock on the New York Stock Exchange, this would not be included in GDP.

Question 26

We do not count the value of the ground beef purchased by McDonald's as part of gross domestic product because this would be double counting.

Question 27

The formula for GDP is C + I + G + X + M.

Question 28

If a country has few natural resources, it cannot become wealthy.

Question 29

Investments in public capital, such as roads and bridges, can significantly raise a nation's productivity growth.

Question 30

The returns to education, as measured by the difference in incomes between college and high school graduates, have fallen sharply in the last 20 years.

Question 31

Intel produced the first microprocessor for use in handheld calculators.

Question 32

Major gains in U.S. productivity growth in the 1990s came from technological progress.

Question 33

The most widely used measure of an economy's output is

A) gross state product
B) gross domestic product
C) net state product
D) net domestic product

Question 34

If an economy produced 400 apples at 15 cents an apple and 600 oranges at 10 cents an orange, the market value of these goods would be

A) $90
B) $100
C) $110
D) $120

Question 35

The calculation of this year's gross domestic product would include

A) the purchase of a second-hand computer
B) food stamps received by an unemployed person
C) the purchase of a life insurance policy
D) the services of a mechanic when she repairs her own automobile

Question 36

The calculation of this year's gross domestic product would include

A) the purchase of a new automobile
B) unemployment compensation benefits received by a former steel worker
C) the money Alice receives when she sells her bicycle to Fred
D) the services of a lawyer when he cleans his own apartment

Question 37

Gross domestic product includes only final goods and services, rather than goods and services that are purchased for use as inputs in producing other goods, to avoid the mistake of

A) ignoring the impact of price inflation
B) ignoring the impact of price deflation
C) double counting
D) single counting

Question 38

Of the following choices, the best example of the purchase of a good or service by the government is

A) unemployment compensation payments to laid-off workers
B) payroll taxes used to finance the Social Security system
C) Social Security benefits paid to the elderly
D) the salary of the president of the United States

Question 39

GDP accountants would classify ______ as a final product.

A) a tank purchased by the Department of Defense
B) auto CD-players purchased by General Motors
C) antiques purchased by a dealer
D) cheese purchased by a pizza restaurant

Question 40

Concerning the calculation of GDP, all of the following are classified as gross private domestic investment except the

A) construction of a new science building by the University of Michigan
B) purchase of 50 automobiles by Hertz Rent-a-Car
C) purchase of new auto-assembly machinery by Ford Motor Co.
D) purchase of 50 shares by General Electric stock by a librarian

Question 41

If a newspaper headline indicates that U.S. net exports were -$190 billion in 2010, it likely meant that

A) U.S. exports were $190 billion and U.S. imports were zero
B) U.S. imports were $190 billion and U.S. exports were zero
C) U.S. exports exceeded U.S. imports by $190 billion
D) U.S. imports exceeded U.S. exports by $190 billion

Question 42

If a newspaper headline indicates that U.S. net exports were $190 billion in 2004, it likely meant that

A) U.S. exports were $190 billion and U.S. imports were zero
B) U.S. imports were $190 billion and U.S. exports were zero
C) U.S. exports exceeded U.S. imports by $190 billion
D) U.S. imports exceeded U.S. exports by $190 billion

Question 43

The nominal gross domestic product of 2013 is the

A) market value of the nation's output of 2013 at the prices of 2013
B) market value of the nation's output of 2004 at the prices of the base year
C) nation's output plus gross private domestic investment
D) nation's output minus gross private domestic investment

Question 44

Suppose that since the base year, all prices have increased by 100 percent. This year's nominal gross domestic product is $8,000 billion. Therefore, the real gross domestic product is

A) $2,000 billion
B) $3,000 billion
C) $4,000 billion
D) $5,000 billion

Question 45

If nominal GDP increases and the price index increases, then

A) real GDP has increased
B) real GDP has decreased
C) real GDP has remained constant
D) we are not sure what happened to real GDP

Question 46

Real GDP is a measure of society's

A) overall quality of life
B) rate of inflation
C) standard of living
D) amount of real output

Question 47

If the price index remains constant and nominal GDP increases, then

A) real GDP has increased
B) real GDP has decreased
C) real GDP has remained constant
D) we are not sure what happened to real GDP

Question 48

In the calculation of GDP, which of the following purchases is included as a personal consumption expenditure?

A) a new apartment building by a landlord
B) a new calculator required for a statistician's job
C) a new computer by a college student
D) a new tractor by a farmer

Question 49

If an investor purchased $50,000 of IBM stock on the New York Stock Exchange, this would

A) be included in GDP as personal consumption expenditures
B) be included in GDP as gross private domestic investment
C) be included in GDP as transfer payments
D) not be included in GDP

Question 50

Which of the following is included in GDP?

A) the payments to drug smugglers
B) expenditures on new military aircraft
C) the purchase of government securities and corporate stocks
D) unemployment compensation benefits paid to laid-off engineers

Question 51

The expenditures approach for calculating GDP includes all of the following except

A) government purchases of goods and services
B) national income
C) net exports of goods and services
D) personal consumption expenditures

Question 52

A slowdown in the economy's productivity growth could be caused by

A) increasing investment in machinery and factories
B) falling prices of oil and natural gas
C) adding more inexperienced workers to the labor force
D) workers' obtaining higher levels of education

Question 53

The concept of creative destruction is attributed to

A) Adam Smith
B) Joseph Shumpeter
C) Henry Ford
D) Steve Jobs

Question 54

Gross domestic product is calculated by adding up all the

A) incomes that households receive from the sale of their productive resources
B) quantities of all goods and services produced in the economy
C) expenditures that business and households make on durable goods and services
D) current market value of all newly produced final goods and services

Question 55

If nominal GDP is increasing by 2 percent annually and the price index is rising by 1 percent annually, the real GDP is

A) increasing by 1 percent annually
B) increasing by 3 percent annually
C) decreasing by 1 percent annually
D) decreasing by 3 percent annually

Question 56

If nominal GDP is increasing by 3 percent annually and the price index is rising by 4 percent annually, the real GDP is

A) increasing by 1 percent annually
B) increasing by 7 percent annually
C) decreasing by 1 percent annually
D) decreasing by 7 percent annually

Question 57

Suppose that in the year 2012, nominal GDP is $9,000 billion and the GDP deflator is 126.5. Then real GDP in constant (base year) prices equals

A) $7,115 billion
B) $7,880 billion
C) $8,254 billion
D) $8,789 billion

Question 58

Suppose that in the year 2013 real GDP was $9,000 billion and in 2014 real GDP was $9,400 billion. The rate of growth in real GDP between 2013 and 2014 would be

A) 2.6 percent
B) 3.8 percent
C) 4.4 percent
D) 5.2 percent

Question 59

According to the "rule of 70," if real GDP grows at 2 percent a year, it would take about ______ years for real GDP to double.

A) 25
B) 30
C) 35
D) 40

Question 60

According to the "rule of 70," real GDP will double about every 23 years if real GDP grows at ______ per year:

A) 1
B) 2
C) 3
D) 4

Question 61

The knowledge, experience, and skills of the work force are known as

A) natural resources
B) human capital
C) physical capital
D) infrastructure

Question 62

Today, the average college graduate can expect to earn between ______ percent more than the average high school graduate.

A) 1 and 2
B) 4 and 6
C) 5 and 15
D) 20 and 30

Question 63

Government policies that tend to speed up economic growth include all of the following except

A) reducing taxes to stimulate domestic consumption expenditures
B) funding basic education to improve the skills of the work force
C) reducing government spending to free up resources for investment
D) providing tax breaks to business to stimulate research and development

Question 64

Government policies to speed up the rate of economic growth include all of the following except

A) providing tax incentives to stimulate national saving and investment
B) improving the efficiency of government regulations
C) decreasing restrictions on imports of goods and services into the country
D) increasing the expansion of the domestic money supply

Question 65

Proponents of increased economic growth say it will

A) make incomes more equal
B) raise living standards
C) reduce pollution
D) make the "rule of 70" obsolete

Question 66

If the value of imports exceeds the value of exports, this means that net exports are

A) positive
B) negative
C) zero
D) decreasing

Question 67

Adding together personal consumption expenditures, gross private domestic investment, government purchases of goods and services, and net exports gives

A) gross domestic revenue
B) gross domestic income
C) gross domestic wealth
D) gross domestic product

Question 68

Real GDP does not address issues of quality of output and work versus leisure choices. Therefore, it

A) is an imperfect measure of society's well-being
B) should not be calculated
C) discriminates against low-income consumers
D) is not valid for income-tax purposes

Question 69

The standard of living in the U.S. is best measured by the

A) nominal gross domestic product
B) nominal gross domestic product per capita
C) real gross domestic product
D) real gross domestic product per capita

Question 70

The value of the bricks purchased by a contractor to build a fireplace in a new home is not counted in GDP because

A) business spending of any type is excluded from GDP
B) it would be double counting
C) the price of the bricks would not be known to the contractor
D) this is a purely financial transaction

Question 71

Economists estimate that the value of transactions that take place in the underground economy is as high as ______ of GDP in the U.S.

A) one-tenth
B) one-third
C) one-half
D) three-fourths

Question 72

Which of the following is included in GDP?

A) Charles visits his doctor for a physical exam.
B) Vicky mows her own lawn.
C) Jerry purchases marijuana that was produced in his own state.
D) Ford Motor Co. purchases Goodyear tires to put on its new cars.

Question 73

Which of the following is not included in GDP?

A) Alyssa purchases a refrigerator for her college dorm room.
B) Wendy's constructs a building for its newest restaurant.
C) John buys an antique vase at a flea market.
D) Jackie pays her lawyer fees to handle her divorce.

Question 74

GDP does attempt to measure

A) the underground economy
B) exports and imports
C) the value of leisure
D) the social costs of pollution

Question 75

GDP is a good measure of the

A) economic well-being of a nation's citizens
B) economy's rate of output
C) distribution of income
D) environmental changes due to production

Question 76

In the base year, the GDP deflator always has a value of

A) 10
B) 25
C) 50
D) 100

Question 77

Economic growth can be expressed in all of the following ways except

A) the value of the nominal GDP in a given year
B) an outward shift in the production possibilities curve
C) an increase in full production output per person
D) percentage changes in the real GDP from one year to the next

Question 78

What can we say about less-developed countries such as Mexico or China?

A) They are overutilizing their capital and labor inputs.
B) They are already using state-of-the-art technologies.
C) They have reached their productive capacities so have to rely on foreign investment.
D) They have the potential to grow rapidly by increasing input use and efficiency.

Question 79

The text gives an example of the importance of human capital that was acquired during World War II. For which type of skill did U.S. workers more than double their productivity in two years?

A) target shooting
B) ship building
C) airplane piloting
D) flag making

Question 80

As a rule, economists agree that greater economic efficiency can be achieved by

A) restricting technological advances so that workers can keep their jobs
B) putting limits on international trade so that other countries cannot exploit us
C) increasing government regulation of key industries such as transportation and communication
D) encouraging our markets to be competitive