Question 1

The PCE deflator measures

Accepted Answer

The PCE deflator (Personal Consumption Expenditures Price Index) measures price changes in consumer expenditures based on national income accounts, reflecting the average price changes for all domestic personal consumption. It is a broad measure of inflation, tracking the prices that consumers pay for goods and services.

Question 2

If nominal GDP was $9,200 billion in Year 1 and $9,420 billion in Year 2 and prices increased from Year 1 to Year 2, then

Accepted Answer

Given only the nominal GDP values and the fact that prices increased from Year 1 to Year 2, we cannot directly calculate the real GDP for either year or the exact value of the GDP deflator without additional information such as the base year or the specific price changes.

Question 3

As a percentage of GNP, the U.S.federal debt

Accepted Answer

The U.S. federal debt as a percentage of GNP sharply increased in the 1980s under President Reagan's administration, decreased in the 1990s under President Clinton's administration, and increased again after 2000 due to tax cuts and increased spending under President Bush's administration, as well as the economic recession and efforts to stimulate the economy under President Obama's administration.

Question 4

If we look at U.S.net exports over the last four decades, we realize that

Accepted Answer

U.S. trade deficits decreased greatly in the early and mid 1980s due to the Plaza Accord, which led to a significant appreciation of the U.S. dollar against other currencies, making U.S. exports more expensive and imports cheaper.

Question 5

If the U.S.unemployment rate has increased, which of the following must have occurred?

Accepted Answer

The U.S. unemployment rate is calculated based on the number of people actively looking for work divided by the labor force. Options A, B, C, and D describe situations that could affect the labor force or employment status but do not directly result in an increased unemployment rate without additional context, such as an increase in the number of people actively looking for work without finding employment.

Question 6

If national income is 5,200, disposable income is 4,400, consumption is 4,100, the trade deficit is 110, and the budget deficit is 150, what is the level of private domestic investment?

Accepted Answer

The answer of If national income is 5,200, disposable income...

Question 7

Assume that the prices of cars manufactured in the U.S.increases due to an increase in quality.Which of the following should happen if the same number of cars is produced?

Accepted Answer

An increase in the quality of cars would likely result in an increase in the price of cars, which would increase nominal GDP since GDP is calculated using current prices. Real GDP would not be affected if the increase in price was solely due to an increase in quality, as there has been no actual increase in production. The GDP-deflator would increase due to the increase in car prices, not decrease. Therefore, option B is the correct answer.

Question 8

Assume the budget deficit decreased by $15 billion, private domestic saving decreased by $20 billion, exports increased by $10 billion, and imports increased by $15 billion.By how much did private domestic investment change?

Accepted Answer

The answer of Assume the budget deficit decreased by $15...

Question 9

The budget deficits in the early 1980s were largely financed through

Accepted Answer

Budget deficits imply that government spending is higher than its revenue. In the early 1980s, the US government implemented expansionary fiscal policies, which resulted in larger budget deficits. The US was also experiencing a relatively high trade deficit, i.e., imports were greater than exports. Thus, the budget deficits were financed through a decrease in net exports, as the government borrowed funds from the rest of the world to finance its spending. Choices A and B are incorrect because an increase in private domestic saving or investment would not necessarily finance the government's budget deficits. Choice C is incorrect because an increase in net exports would have reduced the budget deficits, not financed them.

Question 10

If imports increase by $15 billion, which of the following has to happen for GDP to rise?

Accepted Answer

Gross Domestic Product (GDP) is calculated as the sum of consumption, investment, government spending, and net exports (exports minus imports). If imports increase by $15 billion, causing a negative impact on net exports, an increase in consumption, government purchases, or private domestic investment by more than $15 billion would offset the negative impact on GDP from the increased imports, leading to an overall increase in GDP. Therefore, any of these options (A, B, or C) would be sufficient to increase GDP.

Question 11

If the government increases taxes, which of the following is LEAST likely to occur?

Accepted Answer

The answer of If the government increases taxes, which of...

Question 12

Assume government purchases = $1,500, the budget deficit = $120, consumption = $4,800, private domestic saving = $1,220, the trade deficit = $90, and transfer payments = $0.Which of the following is true?

Accepted Answer

National income is the sum of consumption, private domestic investment, government purchases, and net exports. In this case, net exports are equal to exports minus imports, which is not given in the question. However, we can use the trade deficit to calculate net exports. The trade deficit is equal to imports minus exports, so net exports are equal to -90. Therefore, national income is equal to 4,800 + 1,190 + 1,500 - 90 = 7,400.Disposable income is equal to national income minus taxes and transfer payments. In this case, transfer payments are equal to 0, so disposable income is equal to 7,400 - 0 = 7,400.Private domestic investment is equal to national income minus consumption, government purchases, and net exports. In this case, net exports are equal to -90, so private domestic investment is equal to 7,400 - 4,800 - 1,500 - 90 = 1,190.

Question 13

If private domestic saving exceeds private domestic investment by $220 billion and government spending exceeds tax revenue by $340 billion, then

Accepted Answer

The excess of private domestic saving over private domestic investment (in this case, $220 billion) is equal to the trade deficit (which means the country is importing more than it is exporting). Therefore, the trade deficit is $220 billion. 
The excess of government spending over tax revenue (in this case, $340 billion) represents the budget deficit. It does not directly affect the trade balance. Therefore, options A, B, D, and E are incorrect.

Question 14

If the U.S.budget deficit increased substantially while private domestic saving and private domestic investment remained roughly the same, then

Accepted Answer

When the U.S. budget deficit increases, it means that the government is spending more than it is receiving in revenue. If private domestic savings and investment remain the same, it implies that the overall demand in the economy has not increased, which implies that the deficit is being financed by borrowing from overseas. This increased borrowing, in turn, requires an increase in the imports. Therefore, the correct answer is A) the U.S. imported more than it exported.

Question 15

Assume that GDP = 8,100, consumption = 5,400, gross private domestic investment = 1,200, government purchases = 1,600.Which of the following is true?

Accepted Answer

Net exports (exports - imports) can be calculated as GDP - (consumption + investment + government purchases). Here, 8,100 - (5,400 + 1,200 + 1,600) = -100, indicating imports exceed exports by 100.

Question 16

If the budget surplus increases, which of the following is likely to happen?

Accepted Answer

An increase in the budget surplus typically means the government is saving more, which can lead to a decrease in interest rates, encouraging exports to increase more than imports due to a relatively weaker domestic currency.

Question 17

Assume exports = 300, imports = 400, tax revenues = 1,100, government purchases = 1,400, private domestic saving = 900.Then the level of private domestic investment is

Accepted Answer

Private domestic investment can be calculated using the national income identity equation: Y = C + I + G + NX, where Y is GDP, C is consumption, I is investment, G is government purchases, and NX is net exports (exports - imports). Rearranging the equation, we get I = Y - C - G - NX. 
Using the given values, we can find GDP as: 
Y = C + I + G + NX 
Y = 900 + I + 1,400 + (300 - 400) 
Y = 1,200 + I 
Therefore, I = Y - C - G - NX 
I = (1,200 + I) - 900 - 1,400 - (-100) 
I = 700 
Therefore, private domestic investment is $700.

Question 18

If private domestic saving is 960, private domestic investment is 780, and the government spends 300 more than it receives in tax revenues, then it follows that

Accepted Answer

The trade deficit can be calculated using the formula: Trade Deficit = Private Domestic Saving - Private Domestic Investment - Government Budget Deficit. Here, the government budget deficit is 300 (since spending exceeds tax revenue by 300). So, Trade Deficit = 960 - 780 - 300 = 120.

Question 19

The GDP-deflator and the producer price index (PPI) differ since

Accepted Answer

The PPI measures a fixed market basket of goods, whereas the GDP-deflator measures the prices of all domestically produced goods and services, allowing for changes in the composition of GDP.

Question 20

Assume that GDP = 4,800, consumption = 3,400, private domestic savings = 400, government purchases = 1,200, and net exports = -120.Which of the following is true?

Accepted Answer

Disposable income can be calculated as GDP minus taxes plus transfer payments. However, without information on taxes and transfer payments, a common approach is to assume disposable income equals GDP minus government purchases, which would be 4,800 - 1,200 = 3,600, not 3,800, making A incorrect. For B, private domestic investment can be found using the identity GDP = C + I + G + NX, where I stands for private domestic investment. Rearranging the formula to solve for I gives us I = GDP - C - G - NX = 4,800 - 3,400 - 1,200 - (-120) = 320, making B correct. For C, the budget deficit is typically calculated as government spending minus tax revenue. Without explicit tax revenue data, if we interpret government purchases as the total government spending, there's not enough information to directly calculate the budget deficit, making C's correctness ambiguous without further assumptions. However, the question's phrasing suggests looking for direct calculations or implications from the provided data, which makes C's correctness not directly verifiable from the given information. Given the explanation, the correct answer should actually be B, not D, as the explanation provided does not support all the statements as being true based on the given data and typical economic calculations. My initial response indicating D was incorrect due to an oversight in fully analyzing the implications of each statement based on the provided data.

Quiz 2: National income accounting