Deck 24: Asymmetric Information: Moral Hazard and Adverse Selection

Question 1

Which of the following transactions will be included in this year's GDP?

A) the purchase of paint by a professional house painter
B) the purchase of a Ford automobile produced in Canada
C) the purchase of a Nissan automobile produced in Tennessee
D) the purchase of 1,000 shares of IBM stock

Answer 1

C

Question 2

The sale of sugar will contribute to GDP when the buyer is

A) Krispy Kreme Doughnuts.
B) a mother who is baking cookies.
C) a Mexican food restaurant.
D) a grocery store chain.

Answer 2

B

Question 3

Which of the following choices shows a good or service (produced in the current period) that is NOT counted in GDP for this year?

A) a personal computer
B) wood used for making furniture
C) an oven for installation in a bakery
D) flour sold in a grocery store

Answer 3

B

Question 4

Real GDP per capita is calculated as the total

A) nominal GDP divided by the population.
B) real GDP divided by the nominal GDP.
C) real GDP divided by the population.
D) real GDP in a given year.

Question 5

If a country's GDP per capita rises, this means that I. the country has fewer poorer people. II. some people in the country have more wealth. III. the country's standard of living is rising.

A) I only
B) II only
C) III only
D) II and III only

Question 6

What data are used to calculate GDP?

A) quantities of goods
B) prices of goods
C) both quantities and prices of goods
D) costs of producing goods

Question 7

GDP can be defined as the

A) market value of all final goods and services produced within a country.
B) market value of all goods and services produced within a country in a given year.
C) market value of all final goods and services produced within a country in a given year.
D) market value of all final goods produced within a country in a given year.

Question 8

Reference: Ref 6-1 (Table: Small Town GDP) Which of the four towns in this table has the highest standard of living?

A) Town A
B) Town B
C) Town C
D) Town D

Question 9

A car engine produced by a supplier to Ford Motor Company is an example of

A) an inferior good.
B) a final good.
C) a common good.
D) an intermediate good.

Question 10

Adam, Jill, and Sasha volunteered to paint at their community center. The center had already purchased the painting materials for the project from the local hardware store last year. The value of the community center's painting project

A) does not involve any productive activities and for this reason it will not be included in GDP.
B) will not be included in this year's GDP even though productive activities are involved.
C) will only account for the market value of Adam, Jill, and Sasha's painting time.
D) will be counted as the price charged by a professional painting firm, if it were to do the job.

Question 11

Which of the definitions below best defines Gross Domestic Product?

A) Gross Domestic Product is the market value of all final goods and services sold within a country in a year.
B) Gross Domestic Product is the market value of all final goods and services produced within a country in a year.
C) Gross Domestic Product is the market value of all goods and services produced within a country in a year.
D) Gross Domestic Product is the market value of all final goods and services produced by a country's permanent residents, wherever located, in a year.

Question 12

GDP per capita is GDP divided by

A) population.
B) the price level.
C) the inflation rate.
D) the unemployment rate.

Question 13

Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas and all of its shovels are purchased by foreign firms that produce landscaping services only in their country. What is the value of GDP in this country?

A) $7,700
B) $7,200
C) $6,200
D) $6,700

Question 14

Which of the following services does NOT count towards GDP?

A) A doctor treats a patient in a hospital.
B) An economics professor educates her students in a classroom.
C) You paint your own two-story garage.
D) Your real estate agent sells your house for you.

Question 15

Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction?

A) $15,000
B) -$40,000
C) $200,000
D) -$65,000

Question 16

Reference: Ref 6-1 (Table: Small Town GDP) Refer to the table. Which of the four towns has the lowest standard of living?

A) Town A
B) Town B
C) Town C
D) Town D

Question 17

GDP is the market value of all

A) goods and services produced within a given country.
B) final goods and services produced within a given country.
C) intermediate goods and services produced within a given country.
D) goods, but not services, produced within a given country.

Question 18

Which of the following is the best measure of a country's standard of living?

A) nominal GDP
B) real GDP
C) nominal GDP per capita
D) real GDP per capita

Question 19

All of the following transactions occurred in 2011. Which of the following contributes to GDP for 2011?

A) Ruby Contractors sells a new house, which it had built in 2009.
B) Mario sells his used car for a profit.
C) Your dorm donates used books to charity.
D) None of these transactions counts towards GDP for 2011.

Question 20

Gross Domestic Product uses __________ to account for differences in the ________ final goods and services.

A) market prices; value of
B) market prices; demand for
C) quality measures; value of
D) quality measures; demand for

Question 21

The growth rate of GDP tells how rapidly the country's level of _____ is rising or falling over time.

A) spending
B) trade activity
C) investment
D) production

Question 22

Final goods are goods

A) used to produce other goods.
B) consumed or held in personal inventories.
C) used up in the production process.
D) that cannot be exported.

Question 23

In general, during any given year

A) GDP in the United States will exceed wealth in the United States
B) wealth in the United States will exceed GDP.
C) U.S. wealth and U.S. GDP will be approximately equal.
D) U.S. wealth and U.S. GDP will be unrelated.

Question 24

Suppose you accept a job in Mexico after college, your income will be part of GDP in

A) Mexico only.
B) the United States only.
C) both Mexico and the United States.
D) neither Mexico nor the United States.

Question 25

The value of a car produced and sold in 2000, and sold again in 2008, should be included in GDP for

A) 2000 only.
B) 2008 only.
C) both 2000 and 2008.
D) either 2000 or 2008, but not both.

Question 26

An increase in the rent you pay for your apartment will

A) contribute to GDP as an investment.
B) contribute to GDP as a purchase of goods and services.
C) not contribute to GDP.
D) only contribute to GDP if you are a U.S. citizen.

Question 27

This summer you have a paid internship for Kia Motors in Canada. For which nation, or nations, are you contributing to GDP? Assume you are a U.S. citizen.

A) United States
B) United States and Canada
C) Canada
D) Canada and Korea

Question 28

GDP is calculated by the

A) Council of Economic Advisors.
B) Federal Reserve Board.
C) Bureau of Labor Statistics.
D) U.S. Treasury.

Question 29

Intermediate goods are

A) used to produce other goods.
B) consumed or held in personal inventories.
C) used up in the production process.
D) goods that cannot be exported.

Question 30

Suppose you accept a job in Mexico after college, your income will be part of GNP in

A) Mexico only.
B) the United States only.
C) both Mexico and the United States.
D) neither Mexico nor the United States.

Question 31

A country's GDP (in billions) was $5,690 in 2010 and $5,899 in 2011. What is the nominal growth rate of GDP?

A) 3.54 percent
B) 3.67 percent
C) 9.64 percent
D) None of the answers is correct.

Question 32

Gross Domestic Product (GDP) differs from Gross National Product (GNP) in that

A) GNP measures the production of a country's citizens within a country's borders and in other countries.
B) GNP measures the production of both citizens and foreign workers within a country's borders.
C) GNP measures only the production of a country's citizens within a country's borders.
D) GNP includes the production of foreign workers at work within a country's borders.

Question 33

A computer chip sold to Dell is an example of

A) a final good.
B) an intermediate good.
C) a service.
D) economic growth.

Question 34

Birmingham Steel sells steel to Winston Golf Club Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports sells Winston golf clubs for $1,500,000. How much is added to GDP?

A) $1,500,000
B) $2,200,000
C) $2,500,000
D) $2,800,000

Question 35

You sell your old bedroom set to your roommate for $1,800 and buy brand new custom built furniture for $16,000. How much is added to GDP?

A) $1,800
B) $16,000
C) $17,800
D) None of these answers is correct.

Question 36

Since 1950, the portion of U.S. GDP created by services has

A) remained relatively constant.
B) fallen by a half.
C) doubled.
D) increased slightly.

Question 37

A country has a 2008 growth rate of 4.2 percent and a 2007 GDP of $8,222 (in billions). What was the GDP in 2008?

A) $7,876
B) $8,355
C) $8,567
D) $8,635

Question 38

Services provide a benefit to individuals

A) with the production of a tangible physical product.
B) without the production of a tangible physical product.
C) with no benefit to the consumer.
D) with no market value.

Question 39

A computer chip that you purchase for use in your home computer is an example of

A) a final good.
B) an intermediate good.
C) a service.
D) economic growth.

Question 40

What is the term for the value of a nation's entire stock of assets?

A) gross domestic product
B) gross national product
C) national wealth
D) real gross domestic product

Question 41

Reference: Ref 6-2 (Table: Three-Product Economy) Suppose an economy produces only the three final goods listed in the table. If 2008 is the base year, then the nominal GDP in 2009 is _________ and the real GDP in 2009 is

A) $34,310; $33,700.
B) $35,350; $34,310.
C) $33,700; $35,000.
D) $35,000; $33,700.

Question 42

Real GDP is nominal GDP divided by

A) population.
B) the price level.
C) the inflation rate.
D) the unemployment rate.

Question 43

Suppose an economy produces only these three final goods. The table gives information on the quantities produced and price of goods sold in the current year, 2009, and the previous year, 2008. If the base year is 2008, what is the real GDP in 2008?

A) $25,260
B) $21,134
C) $26,260
D) You cannot answer the question without the quantities of the goods in the base year.

Question 44

Which of the following statements is correct?

A) Nominal GDP is always larger than real GDP.
B) Nominal GDP can only rise from one year to the next because of price increases.
C) Nominal GDP can rise from one year to the next because of price increases or because the country actually produces more, or both.
D) All of the answers are correct.

Question 45

Reference: Ref 6-2 (Table: Three-Product Economy) Suppose an economy produces only the three final goods listed in the table. What is the growth rate of real GDP in 2009 if 2008 is the base year?

A) -3.71 percent
B) 1.00 percent
C) -1.97 percent
D) 2.94 percent

Question 46

For an industrialized country experiencing a 3 percent growth rate in real GDP, what is the most likely reason that GDP per capita is decreasing?

A) The country's population is growing faster than the growth of real GDP.
B) The country's government is hoarding large amounts of the country's production.
C) The country's population is growing slower than the growth of nominal GDP.
D) The country's government spending is growing faster than the private sector's spending.

Question 47

If you want to compare real GDP in 2000 and 2008, what prices can you use? I. 2000 prices for the 2000 GDP and 2008 prices for the 2008 GDP II. 2000 prices for GDP in both years III. 2008 prices for GDP in both years

A) I only
B) II only
C) III only
D) either II or III

Question 48

Reference: Ref 6-3 (Table: GDP Data) Using this GDP data, how much did real GDP grow between 1995 and 2000, in 2000 dollars?

A) 16 percent
B) -14.5 percent
C) 31.8 percent
D) 13.63 percent

Question 49

If nominal GDP rose in 2008, we can conclude that

A) production rose in 2008.
B) the price level rose in 2008.
C) either production or the price level, or both, rose in 2008.
D) neither production nor the price level rose in 2008.

Question 50

If nominal GDP is $5.43 (in billions) in 2007 and 2008 the level of nominal GDP rises to $6.11 (in billions), what is the growth rate of nominal GDP?

A) 12.5 percent
B) -11.1 percent
C) 11.1 percent
D) -12.5 percent

Question 51

The difference between nominal GDP and real GDP is that nominal GDP

A) measures the total value of all final goods and services, whereas real GDP measures the value of all goods and services, whether they are intermediate or final.
B) measures a country's production of final goods and services at current prices, whereas real GDP measures a country's production of all final goods and services at fixed historical prices.
C) is measured in dollar terms whereas real GDP is measured in terms of numbers of goods and services produced.
D) measures a country's production of final goods and services at fixed prices, whereas real GDP measures a country's production of all final goods and services at current market prices.

Question 52

Reference: Ref 6-3 (Table: GDP Data) Using this GDP data, how much did nominal GDP grow between 1995 and 2000?

A) 16 percent
B) -14.5 percent
C) 31.8 percent
D) 13.63 percent

Question 53

Reference: Ref 6-2 (Table: Three-Product Economy) Suppose an economy produces only the three final goods listed in the table. What is the growth rate of real GDP in 2009 if 2009 is the base year?

A) -3.71 percent
B) 1 percent
C) -1.97 percent
D) -2.94 percent

Question 54

The difference between nominal and real GDP is that nominal GDP is valued in _______ year prices and real GDP is valued in _______ year prices.

A) current; base
B) base; current
C) current; average current
D) average base; inflated current

Question 55

The growth rate of GDP is

A) GDP adjusted for changes in the inflation rate.
B) GDP adjusted changes in the price level.
C) GDP adjusted for changes in population growth.
D) None of the answers is correct.

Question 56

Economists prefer using real GDP because, other things held constant, increases in _____ represent true increases in the standard of living.

A) production
B) prices
C) trade balances
D) consumer spending

Question 57

From 1948 to 2003 the United States experienced an average real GDP growth rate of 3.5 percent and Guatemala had an average real GDP growth rate of 3.6 percent from 1993 to 2003. Can we say that Guatemala's standard of living grew more than the United States' standard of living from 1993 to 2003?

A) No, because we do not know the population growth rates of either country or the real GDP growth rate of the United States during 1993-2003.
B) No, because we do not know the real GDP growth rate of the United States during 1993.
C) Yes, clearly 3.6 percent is greater than 3.5 percent.
D) Yes, since the only variable that matters for economic well- being is real GDP.

Question 58

Reference: Ref 6-2 (Table: Three-Product Economy) Suppose an economy produces only the three final goods listed in the table. What is the real GDP in 2009 if 2009 is the base year?

A) $34,310
B) $35,350
C) $33,700
D) $35,000

Question 59

If real GDP rose in 2008, we can conclude that

A) production rose in 2008.
B) the price level rose in 2008.
C) either production, or the price level, or both, rose in 2008.
D) neither production nor the price level rose in 2008.

Question 60

What is the term for GDP when price changes are not included in its calculation?

A) annual GDP
B) nominal GDP
C) real GDP
D) aggregate GDP

Question 61

Since World War II the long-term average rate of real GDP growth in the United States has been

A) 1.35 percent.
B) 3.4 percent.
C) 6.5 percent.
D) 13.5 percent.

Question 62

Recessions can be defined as I. significant and widespread declines in real GDP and rising unemployment. II. significant and widespread declines in nominal GDP. III. a significant and widespread decline in economic activity with falling real GDP, falling unemployment, falling production, and falling sales.

A) I only
B) II only
C) III only
D) I and III only

Question 63

Why are transfer payments not counted as part of GDP?

A) Counting transfer payments constitutes double-counting when they are used to purchase final goods and services.
B) Most transfer payments are not spent within the United States.
C) Spending by the unemployed and senior citizens is not counted as part of GDP.
D) Transfer payments are always paid back and so they cannot be counted twice.

Question 64

In 2010, nominal GDP was $14.6 trillion and the GDP deflator was 110.6. What was real GDP for that year?

A) $16.1 trillion
B) $14.3 trillion
C) $12.1 trillion
D) $13.2 trillion

Question 65

In 2010, real GDP was $13.2 trillion and the GDP deflator was 110.6. What was nominal GDP for that year?

A) $14.3 trillion
B) $14.6 trillion
C) $12.1 trillion
D) $11.9 trillion

Question 66

Which statement is NOT true about net exports?

A) A nation that imports more than it exports has negative net exports.
B) U.S. imports cannot contribute to the GDP of other nations.
C) The United States has had negative net exports for every quarter since the third quarter of 1980.
D) The smallest component of U.S. GDP is net exports.

Question 67

GDP is equal to:

A) consumption + investment + wages + new exports.
B) consumption + investment + wages + profits.
C) consumption + investment + rent + profits.
D) consumption + investment + government spending + net exports.

Question 68

Private spending on final goods and services is part of

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

Question 69

What is true about a recession?

A) It can be concentrated only in a single geographic area, but must be widespread across many sectors of the economy.
B) It must be a significant decline in economic activity for at least three years in a row.
C) It is a significant decline in economic activity lasting more than a few months and must be widespread geographically.
D) None of these answers is correct.

Question 70

A recession is a significant, widespread decline in

A) interest rates and inflation.
B) employment and inflation.
C) employment and real income.
D) inflation and real income.

Question 71

Which of the following is the best definition of a recession?

A) period that follows two consecutive quarters of declines in the level of real GDP
B) significant, widespread decline in real income and employment
C) period that follows a stock market crash
D) period that has a persistent low employment rate

Question 72

In 2010, real GDP was $13.2 trillion and nominal GDP was $14.6 trillion. What was the GDP deflator for that year?

A) 90.4
B) 192.7
C) 110.6
D) There is not enough information to calculate the GDP deflator.

Question 73

In the Spending Approach to GDP, consumption expenditures are

A) government and private spending on final goods and services.
B) private spending during all stages of production of goods and services.
C) private spending on all final goods and services excluding investment purchases.
D) private spending on tools, plants, and equipment used for future production.

Question 74

Business cycles are short-term movements in real GDP around

A) real GDP's long-term trend.
B) nominal GDP's long-term trenB.
C) real GDP per capita's long-term trenC.
D) inflation's long-term trend.

Question 75

What are the components of the National Spending Approach to calculating GDP?

A) consumption expenditures, transfer payments, and government investment
B) private investment, sale of new and used goods, net exports, and transfer payments
C) consumption goods and services, investment goods, government purchases, and net exports
D) wages, rent, interest, and profit

Question 76

In the national spending approach to calculating GDP investment spending involves the acquisition of which of the following?

A) capital goods
B) stocks and bonds
C) money
D) any of a number of financial instruments

Question 77

Why is Nigeria considered to be a growth disaster in spite of the fact that it has large deposits of oil?

A) the occurrence of civil war
B) rulers who were dictators and spent the wealth on arms purchases
C) corruption that siphoned away oil wealth into secret Swiss bank accounts
D) All of the answers are correct.

Question 78

In the National Spending Approach for calculating GDP, government purchases include which of the following government outlays? I. the payment of Social Security benefits II. the allowance of Earned Income Tax Credits III. purchase of a new automobile by the state department

A) I only
B) I, II, and III
C) II only
D) III only

Question 79

A country experiencing high GDP growth and low population growth will have a

A) low real GDP growth rate.
B) low nominal GDP growth rate.
C) low per capita GDP growth rate.
D) high per capita GDP growth rate.

Question 80

A business cycle refers to ___________ movements in _________ around ________.

A) short-run; unemployment; a long-term trend in real GDP
B) short-run; real GDP; a long-term trend in real GDP
C) short-run; real GDP; a long-term trend in unemployment rates
D) long-run; real GDP; short-run real GDP