Deck 23: Measuring a Nations Income

Question 1

While GDP includes tangible goods such as books and bug spray,it excludes intangible services such as the services provided by teachers and exterminators.

Answer 1

False

Question 2

U.S.GDP includes the market value of rental housing,but not the market value of owner-occupied housing.

Answer 2

False

Question 3

Microeconomics and macroeconomics are closely linked.

Answer 3

True

Question 4

U.S.GDP includes estimates of the value of items that are produced and consumed at home,such as housework and car maintenance.

Question 5

Macroeconomic statistics tell us about a particular household,firm,or market.

Question 6

An economy's income is the same as its expenditure because every transaction has a buyer and a seller.

Question 7

For an economy as a whole,income must exceed expenditure.

Question 8

U.S.GDP excludes the production of most illegal goods.

Question 9

GDP can measure either the total income of everyone in the economy or the total expenditure on the economy's output of goods and services,but GDP cannot measure both at the same time.

Question 10

Additions to inventory subtract from GDP,and when the goods in inventory are later used or sold,the reductions in inventory add to GDP.

Question 11

GDP is the most closely watched economic statistic because it is thought to be the best single measure of a society's economic well-being.

Question 12

In years of economic contraction,firms throughout the economy increase their production of goods and services,employment rises,and jobs are easy to find.

Question 13

GDP is the market value of all final goods and services produced by a country's citizens in a given period of time.

Question 14

The basic tools of supply and demand are as central to macroeconomic analysis as they are to microeconomic analysis.

Question 15

GDP includes only the value of final goods because the value of intermediate goods is already included in the prices of the final goods.

Question 16

GDP adds together many different kinds of products into a single measure of the value of economic activity by using market prices.

Question 17

The goal of macroeconomics is to explain the economic changes that affect many households,firms,and markets simultaneously.

Question 18

Macroeconomic statistics include GDP,the inflation rate,the unemployment rate,retail sales,and the trade deficit.

Question 19

Macroeconomics is the study of the economy as a whole.

Question 20

At a rummage sale,you buy two old books and an old rocking chair;your spending on these items is not included in current GDP.

Question 21

Real GDP evaluates current production using prices that are fixed at past levels and therefore shows how the economy's overall production of goods and services changes over time.

Question 22

U.S.GDP was almost $14 billion in 2007.

Question 23

The government computes measures of income other than GDP because these other measures usually tell different stories about overall economic conditions.

Question 24

If total spending rises from one year to the next,then the economy must be producing a larger output of goods and services.

Question 25

Most goods whose purchases are included in the investment component of GDP are used to produce other goods.

Question 26

Expenditures by households on education are included in the consumption component of GDP.

Question 27

If the value of an economy's imports exceeds the value of that economy's exports,then net exports is a negative number.

Question 28

An increase in nominal U.S.GDP necessarily implies that the United States is producing a larger output of goods and services.

Question 29

If consumption is $4000,exports are $300,government purchases are $1000,imports are $400,and investment is $800,then GDP is $5700.

Question 30

If consumption is $1800,GDP is $4300,government purchases are $1000,imports are $700,and investment is $1200,then exports are $300.

Question 31

If the U.S.government reports that GDP in the third quarter was $12 trillion at an annual rate,then the amount of income and expenditure during quarter three was $3 trillion.

Question 32

Changes in inventory are included in the investment component of GDP.

Question 33

The investment component of GDP refers to financial investment in stocks and bonds.

Question 34

The government purchases component of GDP includes salaries paid to soldiers but not Social Security benefits paid to the elderly.

Question 35

If someone in the United States buys a surfboard produced in Australia,then that purchase is included in both the consumption component of U.S.GDP and the net exports component of U.S.GDP.

Question 36

New home construction is included in the consumption component of GDP.

Question 37

When an American doctor opens a practice in Bermuda,his production there is part of U.S.GDP.

Question 38

Nominal GDP uses constant base-year prices to place a value on the economy's production of goods and services,while real GDP uses current prices to place a value on the economy's production of goods and services.

Question 39

In 2007,government purchases was the largest component of U.S.GDP.

Question 40

If exports are $500,GDP is $8000,government purchases are $1200,imports are $700,and investment is $800,then consumption is $6200.

Question 41

GDP does not directly measure those things that make life worthwhile,but it does measure our ability to obtain many of the inputs into a worthwhile life.

Question 42

If nominal GDP is $12,000 and the GDP deflator is 80,then real GDP is $15,000.

Question 43

Real GDP per person tells us the income and expenditure of the average person in the economy.

Question 44

In 2004,the level of U.S.real GDP was close to four times its 1965 level.

Question 45

Real GDP is a better gauge of economic well-being than is nominal GDP.

Question 46

GDP is defined as the market value of all final goods and services produced within a country in a given period of time.In spite of this definition,some production is left out of GDP.Explain why some final goods and services are not included.

Question 47

Other things equal,in countries with higher levels of real GDP per person,life expectancy and literacy rates are higher than in countries with lower levels of real GDP per person.

Question 48

If the GDP deflator in 2006 was 160 and the GDP deflator in 2007 was 180,then the inflation rate in 2007 was 12.5%.

Question 49

Recessions are associated with lower incomes,rising unemployment,and falling profits.

Question 50

The term real GDP refers to a country's actual GDP as opposed to its estimated GDP.

Question 51

Changes in the GDP deflator reflect only changes in the prices of goods and services.

Question 52

If nominal GDP is $10,000 and real GDP is $8,000,then the GDP deflator is 125.

Question 53

Periods during which real GDP rises are called recessions.

Question 54

Changes in real GDP reflect only changes in the amounts being produced.

Question 55

The output of goods and services produced in the United States has grown on average 3.2 percent per year.

Question 56

The GDP deflator can be used to take inflation out of nominal GDP.

Question 57

If the GDP deflator in 2004 was 150 and the GDP deflator in 2005 was 120,then the inflation rate in 2005 was 25%.

Question 58

If real GDP is higher in one country than in another,then we can be sure that the standard of living is higher in the country with the higher real GDP.

Question 59

GDP does not make adjustments for leisure time,environmental quality,or volunteer work.

Question 60

Economists use the term inflation to describe a situation in which the economy's overall production level is rising.

Question 61

Which of the following newspaper headlines is more closely related to what microeconomists study than to what macroeconomists study?

A) Unemployment rate rises from 5 percent to 5.5 percent.
B) Real GDP grows by 3.1 percent in the third quarter.
C) Retail sales at stores show large gains.
D) The price of oranges rises after an early frost.

Question 62

Explain why it is the case that the value of intermediate goods produced and sold during the year is not included directly as part of GDP,but the value of intermediate goods produced and not sold is included directly as part of GDP.

Question 63

Macroeconomists study

A) the decisions of households and firms.
B) the interaction between households and firms.
C) economy-wide phenomena.
D) regulations on firms and unions.

Question 64

Which of the following statements about GDP is correct?

A) GDP measures two things at once: the total income of everyone in the economy and the unemployment rate of the economy's labor force.
B) Money continuously flows from households to government and then back to households,and GDP measures this flow of money.
C) GDP is to a nation's economy as household income is to a household.
D) All of the above are correct.

Question 65

Between 1929 and 1933,NNP measured in current prices fell from $96 billion to $48 billion.Over the same period,the relevant price index fell from 100 to 75.
a.
What was the percentage decline in nominal NNP from 1929 to1933?
b.
What was the percentage decline in real NNP from 1929 to 1933? Show your work.

Question 66

Which of the following is not a question that macroeconomists address?

A) Why is average income high in some countries while it is low in others?
B) Why does the price of oil rise when war erupts in the Middle East?
C) Why do production and employment expand in some years and contract in others?
D) Why do prices rise rapidly in some periods of time while they are more stable in other periods?

Question 67

If an economy's GDP rises,then it must be the case that the economy's

A) income rises and saving falls.
B) income and saving both rise.
C) income rises and expenditure falls.
D) income and expenditure both rise.

Question 68

Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

A) the effect of taxes on the prices of airline tickets,the profitability of automobile-manufacturing firms,and employment trends in the food-service industry
B) the price of beef,wage differences between genders,and antitrust laws
C) how consumers maximize utility,and how prices are established in markets for agricultural products
D) the percentage of the labor force that is out of work,and differences in average income from country to country

Question 69

You find that your paycheck for the year is higher this year than last.Does that mean that your real income has increased? Explain carefully.

Question 70

We would expect a macroeconomist,as opposed to a microeconomist,to be particularly interested in

A) explaining how economic changes affect prices of particular goods.
B) devising policies to deal with market failures such as externalities and market power.
C) devising policies to promote low inflation.
D) identifying those markets that are competitive and those that are not competitive.

Question 71

For an economy as a whole,income must equal expenditure because

A) the number of firms is equal to the number of households in an economy.
B) international law requires that income equal expenditure.
C) every dollar of spending by some buyer is a dollar of income for some seller.
D) every dollar of saving by some consumer is a dollar of spending by some other consumer.

Question 72

For an economy as a whole,

A) wages must equal profit.
B) consumption must equal saving.
C) income must equal expenditure.
D) the number of buyers must equal the number of sellers.

Question 73

U.S.real GDP is substantially higher today than it was 60 years ago.What does this tell us,and what does it not tell us,about the well-being of U.S.residents?

Question 74

Identify the immediate effect of each of the following events on U.S.GDP and its components.
a.
James receives a Social Security check.
b.
John buys an Italian sports car.
c.
Henry buys domestically produced tools for his construction company.

Question 75

The basic tools of supply and demand are

A) useful only in the analysis of economic behavior in individual markets.
B) useful in analyzing the overall economy,but not in analyzing individual markets.
C) central to microeconomic analysis,but seldom used in macroeconomic analysis.
D) central to macroeconomic analysis as well as to microeconomic analysis.

Question 76

Gross domestic product measures two things at once:

A) the total spending of everyone in the economy and the total saving of everyone in the economy.
B) the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.
C) the value of the economy's output of goods and services for domestic citizens and the value of the economy's output of goods and services for the rest of the world.
D) the total income of households in the economy and the total profit of firms in the economy.

Question 77

Which of the following statistic is usually regarded as the best single measure of a society's economic well-being?

A) the unemployment rate
B) the inflation rate
C) gross domestic product
D) the trade deficit

Question 78

Since it is counted as investment,why doesn't the purchase of earthmoving equipment from China by a U.S.corporation increase U.S.GDP?

Question 79

Statistics that are of particular interest to macroeconomists

A) are largely ignored by the media.
B) are widely reported by the media.
C) include the equilibrium prices of individual goods and services.
D) tell us about a particular household,firm,or market.

Question 80

Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

A) Why do prices in general rise by more in some countries than in others?
B) Why do wages differ across industries?
C) Why do production and income increase in some periods and not in others?
D) How rapidly is GDP currently increasing?