Deck 2: Measurement of Macroeconomic Variables

Question 1

To calculate personal savings,you would need information on all of the following except:

A)personal disposable income.
B)personal consumption expenditures.
C)interest paid to business.
D)government expenditure.
E)personal transfer payments to foreigners.

Answer 1

D

Question 2

Which of the following are not included in the consumption component of gross domestic product?

A)Purchases of stocks and bonds.
B)Consumer durable goods
C)Nondurable consumption goods
D)Consumer services

Answer 2

A

Question 3

The investment component of GDP includes

A)residential construction investment.
B)inventory investment.
C)business fixed investment.
D)Both b and c
E)All of the above

Answer 3

E

Question 4

The broadest measure of the aggregate price level is the

A)GDP deflator.
B)consumer price index.
C)producer price index.
D)gross domestic product.

Question 5

Consumption expenditure includes

A)the production of consumption goods not sold and held in inventory.
B)the purchase of consumption goods made domestically but consumed by foreigners.
C)purchase of goods and services by local government.
D)services,durables,and non-durable goods.

Question 6

Real gross national product is

A)the same as national income if there were no depreciation and taxes.
B)always less than national income.
C)always greater than real gross domestic product.
D)always less than nominal gross national product.

Question 7

National income is defined as gross national product minus

A)depreciation and net taxes.
B)national income.
C)depreciation.
D)personal disposable income.

Question 8

The calculation of potential output in the United States has been complicated recently by problems in

A)calculating unemployment.
B)distinguishing real from nominal income.
C)calculating a high-employment,or long-run average,level unemployment rate.
D)measuring depreciation and,therefore,net national product.

Question 9

The index that measures the change in price of a typical basket of consumer goods is

A)the GDP deflator.
B)the consumer price index.
C)nominal GDP.
D)real GDP.

Question 10

If the nominal GDP is $12,000 in 2005 and $15,000 in 2006,and if inflation is 10% between these years,then

A)employment fell between 2005 and 2006.
B)real GDP fell between 2005 and 2006.
C)real GDP rose between 2005 and 2006.
D)the economy experienced no growth between these years.
E)everyone is rich now than they were before.

Question 11

If the value of a price index was 125 for 2005 and 75 for 1982,and GDP was 2500 in 2005 compared to 600 in 1982,the value of real 2005 GDP in terms of 1982 prices is

A)1500.
B)1000.
C)2500.
D)360.

Question 12

If real GDP exceeds potential GDP,this means that

A)output is below the level produced at the benchmark rate for high employment and high rate of resource utilization.
B)this cannot occur; the economy can never be at a point where real GDP exceeds potential GDP.
C)cyclical output is above what the economy can sustain in the long-run.
D)the economy is expanding.

Question 13

Inventory investment is

A)never positive.
B)often negative.
C)can be either negative or positive.
D)always positive.

Question 14

Gross domestic product includes

A)all intermediate and final goods and services produced.
B)the current production of final goods and services with a country's borders.
C)exchanges of assets.
D)the current production of final goods and services by a country's citizens.
E)All of the above

Question 15

Business fixed investment

A)includes the building of single- and multi-family housing units.
B)is the change in business inventories.
C)is the smallest subcomponent of investment. d.consists of purchases of a newly produced plant and equipment.

Question 16

In the base year,the relationship between nominal and real GDP is

A)uncertain.
B)one of equality.
C)real GDP is higher.
D)nominal GDP is higher.

Question 17

Chain-weighted GDP deflator inflation differs from GDP deflation inflation because:

A)it uses different goods in its calculation.
B)it uses two different base years to get the quantities used to calculate the index.
C)it uses a constant set of prices every year.
D)it uses two different base years to get the prices used to calculate the index.

Question 18

Personal income equals personal disposable income plus

A)payroll taxes.
C)transfer payments.
D)dividend payments.
D)personal saving.
E)personal taxes.

Question 19

Goods in the CPI inflation are weighted by

A)the price of each good.
B)the share of each good in GDP.
C)the share of each good in the budget of an average household.
D)the share of each good in total consumption.

Question 20

In the event of deflation,or negative inflation,then

A)real GDP is always lower than nominal GDP.
B)real GDP is always lower than nominal GDP after the base year.
C)real GDP is always lower than nominal GDP.
D)real GDP is always higher than nominal GDP before the base year.
E)None of the above

Question 21

Government purchases of goods and services

A)consist of current output of goods and services purchased by the federal government only.
B)includes the current output of goods and services bought by the federal,state,and local governments.
C)are the largest component of gross national product.
D)include both defense spending and spending on social security.

Question 22

The primary emphasis in U.S.national income accounts is on

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

Question 23

Assume that gross national product amounts to $4300.5 billion,depreciation is $550.1 billion,and indirect taxes are $399.3 billion.Then,net national product amounts to

A)$3351.1 billion.
B)$4549.8 billion.
C)$3851.2 billion.
D)$3750.4 billion.

Question 24

Policymakers utilize gross domestic product figures

A)to monitor recessions and expansions.
B)as a means to measure welfare.
C)to observe long-run growth trends.
D)Both a and c
E)All of the above

Question 25

Which of the following would be included in GDP?

A)Production of computers by IBM in Japan
B)The value of a car.
C)The commission on the sale of your house.
D)The value of childcare provided at home by the child's mother.

Question 26

Potential output

A)is defined as the level of real output that the economy could produce at high rates of resource utilization.
B)only occurs when both the unemployment rate and inflation rate are zero.
C)can be estimated by choosing benchmark measures of high resource utilization.
D)Both a and c

Question 27

In the U.S.,government expenditure accounts for

A)10% of GDP
B)20% of GDP
C)40% of GDP
D)government expenditure is not included in GDP

Question 28

Which of the following governmental expenditures are not included in gross domestic product?

A)The construction of federal buildings
B)Social Security payments
C)Salaries for senators
D)Purchases of new defense weapons

Question 29

Based on the data in Table 2-7,recessions in the U.S.are

A)irregular in length but evenly spaced.
B)rare.
C)regularly spaced and regular in length.
D)irregular in length and irregularly spaced.

Question 30

Personal saving

A)equals national income less personal consumption expenditures.
B)is personal disposable income minus consumption expenditures.
C)is the value of stocks and bonds.
D)equals personal income minus taxes.
E)is personal disposable income less personal taxes.

Question 31

Which of the following helps economists avoid double counting in computing of GDP?

A)Including goods and services produced only within a given area.
B)Only include transfer payments made by the government and not individuals.
C)Only include capital purchases by corporations and not by family-owned firms.
D)Avoiding the use of intermediate goods in calculating GDP.

Question 32

Profits earned in the United States by a foreign-owned firm would be included in

A)gross domestic product and gross national product.
B)gross national product but not in gross domestic product.
C)gross domestic product but not in gross national product.
D)neither gross domestic product nor gross national product.

Question 33

Which of the following are not included as a component of national income?

A)Corporate profits
B)Compensation of employees
C)Net interest income
D)Capital gains and capital losses

Question 34

Which of the following indices best signals future movements in retail prices?

A)The implicit GDP deflator
B)nominal GDP
C)The consumer price index
D)The producer price index
E)The measure of economic welfare (MEW)

Question 35

A recession is a period when

A)output growth is negative for two consecutive quarters
B)actual output falls below potential output and the rate of unemployment falls below the high- employment benchmark.
C)unemployment reaches 10 percent for an extended period of time.
D)actual output falls below potential output and the rate of unemployment rises above the high-employment benchmark..

Question 36

Which of the following is true about unemployment?

A)the benchmark high-employment level is most likely between 3 and 4 percent
B)In recent years,the appropriate benchmark high-employment level has risen.
C)Based on the experience of the 1960s,a 7 percent unemployment rate was too low to be sustained without a buildup of inflationary pressure
D)During the 1970s,the benchmark high-employment level rose but this was not observed by economists at the time.

Question 37

When moving from gross domestic product to gross national product,one has to

A)add earnings by foreign residents and firms in the United States.
B)subtract earnings by foreign residents and firms in the United States.
C)subtract foreign earnings of U.S.residents and firms.
D)add foreign earnings of U.S.residents and firms.
E)Both b and d

Question 38

The most volatile component of GDP over the business cycle is

A)consumption.
B)net exports.
C)investment.
D)government purchases.

Question 39

In the U.S.,the largest share of national income is earned in the form of

A)taxes on production.
B)wages and salary.
C)interest earned on capital.
D)corporate profits.

Question 40

The most commonly used measure of changes in the cost of living for households

A)real GDP.
B)the CPI.
C)nominal GDP.
D)the GDP deflator.

Question 41

If a US citizen is employed by a US company in Russia,the income she earns is:

A)part of US GNP and Russian GDP.
B)part of US GNP and Russian GNP.
C)part of US GDP and Russi GNP
D)part of US GDP and Russia GDP.

Question 42

The period between a business cycle peak and the subsequent trough is called

A)a recession.
B)a complete cycle.
C)an expansion.
D)a change in economic trend.

Question 43

A new chain-weighted measure of real GDP

A)was introduced by the Bureau of Economic Analysis in 1995.
B)uses the average of prices in a given year and prices in the previous year instead of using prices in a base year as weights.
C)differs greatly from previous measures that utilized the base year method.
D)Both a and b
E)All of the above

Question 44

Suppose that a firm spends $200,000 to build a factory in 2012 that is expected to have a life of 10 years.As a result,GDP in 2012 will increase by:

A)$20,000
B)$200,000
C)You need to know the selling price of the factory to answer this question.
D)It depends upon the tax law regarding depreciation.

Question 45

The largest component of GDP in the US is typically:

A)government purchases.
B)social securtity.
C)consumption.
D)investment.
E)net exports.

Question 46

What is the relationship between real and nominal GDP?

A)real GDP = nominal GDP - Price level
B)nominal GDP = Real GDP/Price level
C)real GDP = nominal GDP/Price level
D)real GDP = nominal GDP + Price level.

Question 47

What was the largest and most important economic event of the 1900s?

A)The terrorist attacks of 9/11.
B)Ronald Reagan's tax cuts.
C)The Great Depression.
D)The inflation of the 1970s.

Question 48

Suppose that Apple computer buys computer components for $10,000 and uses them to make ipods that they sell to Best Buy for $30,000.Best Buy sells these ipods for $32,000.As a result,GDP has risen by:

A)$22,000
B)$2,000
C)$20,000
D)$32,000

Question 49

The contemporary rate of unemployment that is often put forth as a benchmark high-employment level ranges from

A)4.5 to 5 percent.
B)4.0 to 6 percent.
C)6 to 6.5 percent.
D)1 to 4.5 percent.

Question 50

The value of every monetary transaction in the economy would be included in

A)GDP.
B)potential GDP.
C)personal income.
D)national income.
E)None of the above.

Question 51

In the national income accounts,investment includes all of the following EXCEPT:

A)stock market purchases.
B)inventories.
C)purchases of equipment.
D)new home sales.

Question 52

In the United States,an official dating of business cycles

A)is executed by the Federal Reserve Bank of New York.
B)originates with the Department of Commerce.
C)was started by the Bureau of Labor Statistics Institute.
D)is performed by the Business Cycle Dating Group of the National Bureau of Economic Research.

Question 53

The CPI overestimates inflation because

A)it often ignores the invention of new goods.
B)it always includes discount stores.
C)it allows substitution from more expensive goods to cheaper goods.
D)all of the above.

Question 54

Suppose that Firestone Tires buys raw rubber for $5,000 and then uses this to make tires it sells for $20,000.As a result,GDP has risen by:

A)$20,000
B)$5,000
C)$15,000
D)$25,000

Question 55

Which of the following statements is (are)correct?

A)Both recessions and expansions can now be dated with great accuracy
B)The dating of recessions and expansions is very subjective.
C)The dating of recessions and expansions is complicated by determining potential output.
D)Both b and c

Question 56

In 1996,an advisory commission,appointed by the Senate Finance Committee,estimated that,due to certain distortions,the CPI overstates inflation by

A).5 percentage points per year.
B)2.0 percentage points per year.
C)1.1 percentage points per year.
D).25 percentage points per year.

Question 57

Possible sources of an upward bias in the CPI include the

A)quantity adjustment bias.
B)substitution bias.
C)new products bias.
D)Both b and c
E)All of the above