Deck 16: Gross Domestic Product and the Wealth of Nations: an Introduction to the Macroeconomy

Question 1

Macroeconomics includes the study of

A) economic growth, the unemployment rate, and inflation.
B) product demand, product supply, and profit maximization.
C) industry sales, corporate growth, and home prices.
D) decisions made by individuals, businesses, and governments.

Answer 1

economic growth, the unemployment rate, and inflation.

Question 2

Macroeconomics, as opposed to microeconomics, includes the study of what determines the

A) wages paid to employees of Walmart.
B) prices charged for automobiles produced by Tesla.
C) exchange rates between the U.S. dollar and the currencies of Asian nations.
D) quantity of iPhones produced by Apple.

Answer 2

exchange rates between the U.S. dollar and the currencies of Asian nations.

Question 3

Microeconomics, as opposed to macroeconomics, includes the study of what determines the

A) unemployment rate in the United States.
B) profitability of the airline industry.
C) size of the federal deficit.
D) rise or fall of the inflation rate.

Answer 3

profitability of the airline industry.

Question 4

Macroeconomics is a study of the economy as a whole, and microeconomics includes the study of decisions made by individuals and businesses.

Question 5

To calculate gross domestic product, you use the sum of the market values of all final goods and services produced in a given year. This means you

A) count the total number of final goods and services produced in the marketplace in that particular year and then add the numbers together.
B) count the total number of final goods and services produced in the marketplace from every year including that given year and then add the numbers together.
C) value the final goods and services at their market prices for that particular year, multiply them by the quantity produced that year, and then add the numbers together.
D) value the final goods and services at their market prices for that particular year, multiply them by the quantity produced from every year including that given year, and then add the numbers together.

Question 6

Which of the following goods is directly counted in GDP?

A) the pepperoni that Pizza Hut purchases for its pizzas
B) the cheese that Pizza Hut purchases for its pizzas
C) the large Pizza Hut pizza purchased by a family for dinner
D) the boxes that Pizza Hut purchases to box its pizzas

Question 7

Which of the following transactions represents the purchase of a final good or service?

A) General Motors purchases tires from Goodyear to install on its new Chevy Suburbans.
B) Aunt Matilda buys a new convection oven for her condo in Boca Raton.
C) Dunkin' Donuts purchases coffee beans.
D) Tiffany's buys platinum wire to use in the production of its necklaces.

Question 8

Which of the following would be directly counted in GDP for 2015?

A) windows purchased from Pella in 2015 to be installed in a house built in 1945
B) windows built in 1945 which were salvaged from a 1945 house and are going to be used in a newly-built house
C) windows built in 1945 which were salvaged from a 1945 house and are going to be used in a house built in 1950
D) none of the above

Question 9

Which of the following would be directly counted in U.S. GDP for 2015?

A) a 2015 Mini Cooper, built in Oxford, England, and sold to a computer programmer in San Jose, California
B) a 1957 Chevy Bel Air convertible sold by its original owner to a car collector in Nashville on March 1, 2015
C) a 2015 Harley-Davidson Softail Deluxe, built in Pennsylvania, and sold to a kindergarten teacher in Moose Jaw, Saskatchewan, Canada
D) a Tesla car battery, built in 2014 in California, to be installed in a new 2015 Tesla Model S

Question 10

Table 16.1 :

-Refer to Table 16.1. Consider the data in the table above (in billions of dollars) for an economy. Gross domestic product (in billions of dollars) for this economy equals

A) $2,700.
B) $2,525.
C) $2,350.
D) $2,100.

Question 11

Investment, as defined by economists, would include the purchase of a

A) Treasury bond.
B) corporate bond.
C) share of stock in Facebook.
D) cargo van by a delivery company.

Question 12

The purchase of a new house is included in

A) consumption expenditures.
B) investment expenditures.
C) government expenditures.
D) net export expenditures.

Question 13

The purchase of an airplane produced in the United States by the government of Thailand is included in

A) U.S. imports.
B) U.S. government purchases.
C) U.S. exports.
D) Thailand government exports.

Question 14

In 2013, which component of U.S. GDP had a negative value?

A) government spending
B) investment
C) net exports
D) Components of GDP cannot have a negative value.

Question 15

Consumption spending includes spending on durable goods, nondurable goods, and services.

Question 16

Spending on new housing, which economists refer to as residential fixed investment, is included in the consumption expenditures component of GDP.

Question 17

When a country's imports are larger than its exports, the country is running a trade deficit.

Question 18

GDP measures the total income a society generates.

Question 19

Last year in a small economy, consumption spending was $12,000, investment spending was $3,500, government spending was $4, 000, exports were $1,150, and imports were $1,350. What was GDP for this economy last year?

Question 20

What are the four subcategories of investment expenditures?

Question 21

Real GDP in a given year is

A) GDP valued in the prices of the base year.
B) GDP valued in the prices of that year.
C) always less than nominal GDP for the same year.
D) GDP adjusted for the value of intermediate goods.

Question 22

Table 16.2: Consider the data above for Fredonia, a country that produces only two products: surfboards and umbrellas.

-Refer to Table 16.2. Nominal GDP for Fredonia for 2015 equals

A) $2,750.
B) $3,500.
C) $4,325.
D) $5,500.

Question 23

Table 16.2: Consider the data above for Fredonia, a country that produces only two products: surfboards and umbrellas.

-Refer to Table 16.2. Nominal GDP for Fredonia for 2016 equals

A) $2,750.
B) $3,500.
C) $4,325.
D) $5,500.

Question 24

Table 16.2: Consider the data above for Fredonia, a country that produces only two products: surfboards and umbrellas.

-Refer to Table 16.2. Real GDP for Fredonia for 2016 using 2015 as the base year equals

A) $2,750.
B) $3,500.
C) $4,325.
D) $5,500.

Question 25

For the best indication of the material standard of living of the typical person in society, focus should be placed on

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

Question 26

If real GDP is less than nominal GDP and prices have not changed from the base-year prices, then production must have declined.

Question 27

Table 16.3 : Consider the data above for Melodia, a country that produces only two products: hearing aids and tubas.
-Refer to Table 16.3.Using 2015 as the base year, calculate nominal GDP and real GDP for 2015 and for 2016.

Question 28

The size of the underground economy would tend to increase if the government of a country

A) increased government regulations on businesses.
B) legalized prostitution.
C) decreased income tax rates.
D) lowered the legal drinking age from 21 to 18.

Question 29

Which of the following transactions would take place in the underground economy?

A) Samuel tells his wife he is going to work but really goes to the local casino.
B) Tanisha bought a tablet computer for $269 but decided to sell it to her sister instead of keeping it.
C) Laurie buys a case of wine at a liquor store, not realizing that 15% of the purchase price goes to the government as tax revenue.
D) Bailey makes beef jerky and sells it at a local flea market for cash to avoid paying taxes.

Question 30

Suppose Gerald works for Lola as a production assistant. Gerald and Lola fall in love, get married and have children. Gerald stops working for Lola in order to care for the children. What will be the effect of this scenario on GDP?

A) GDP will increase.
B) GDP will decrease.
C) GDP will not change.
D) GDP may increase or decrease depending on the rate of inflation.

Question 31

Which of the following statements is true?

A) Lower infant mortality rates are always a result of income growth in countries.
B) Lower infant mortality rates are related to income growth in countries.
C) The higher the income per capita, the higher the infant mortality rate.
D) There is no correlation between income per capita and infant mortality rates.

Question 32

Research conducted by Justin Wolfers and Betsey Stevenson shows that as GDP increased, respondents reported all of the following except

A) fewer choices over how they spend their time.
B) less physical pain and depression.
C) more general enjoyment.
D) being treated with greater respect.

Question 33

In the United States, the size of the underground economy is estimated to be as much as $2 trillion.

Question 34

GDP does not account for things we do not value or like, and these things are called "economic bads."

Question 35

GDP is a good measure of the distribution of income.

Question 36

What would be expected to happen to the size of the underground economy if:
a. businesses tax rates decreased.
b. government regulations on businesses increased dramatically.
c. the sale and use of marijuana was legalized in all 50 states.

Question 37

List five shortcomings of GDP which result in GDP not accurately measuring a country's well being.

Question 38

Economic growth is generally measured as the percentage increase in a country's

A) real GDP.
B) nominal GDP.
C) annual employment rate.
D) per-capita nominal GDP.

Question 39

Between 1947 and 2014, U.S. real GDP

A) remained relatively unchanged.
B) doubled.
C) grew eightfold.
D) decreased even though nominal GDP increased.

Question 40

The formula used to determine how long it will take a country to double its real GDP is called

A) the nominal-to-real formula.
B) the double-or-nothing formula.
C) the expenditure multiplier.
D) the rule of 70.

Question 41

If a country's real GDP grows at 10% per year, its real GDP will double about every

A) 5 years.
B) 7 years.
C) 10 years.
D) 14 years.

Question 42

Countries that are more open to international trade tend to have

A) property rights that are not well defined.
B) higher levels of economic growth.
C) lower levels of physical capital.
D) lower levels of economic growth.

Question 43

Physical capital makes workers ________, so a declining capital stock ________.

A) more productive; helps an economy grow
B) less productive; helps an economy grow
C) more productive; hinders economic growth
D) less productive; hinders economic growth

Question 44

The knowledge and skills people accumulate through experience, education, and training is called

A) physical capital.
B) human capital.
C) economic investment.
D) spillover benefits.

Question 45

If it takes 35 years for real GDP to double, real GDP is growing at an annual rate of approximately 2%.

Question 46

What are two ways in which economic growth is generally measured?

Question 47

List six essential ingredients for economic growth.

Question 48

During a business cycle recession, total production ________ and total employment ________.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 49

Business cycles ________, and recessions ________.

A) are of equal length; are of equal severity
B) are of equal length; differ in severity
C) vary in length; are of equal severity
D) vary in length; differ in severity

Question 50

The organization responsible for determining the start- and end-dates of a recession is

A) the National Bureau of Economic Research.
B) the Bureau of Economic Analysis.
C) the Federal Reserve.
D) the U.S. Department of Labor.

Question 51

Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico in 2005. This drove up the prices of natural gas, gasoline, and heating oil. This is an example of a

A) supply shock.
B) demand shock.
C) negative externality.
D) depression.

Question 52

Events that arise spontaneously and unpredictably, often as a result of changes in consumer and business confidence regarding the economy, are called

A) supply shocks.
B) demand shocks.
C) recessions.
D) externalities.

Question 53

A decline in which of the following types of spending was not generally considered a part of the beginning and continuation of the Great Recession?

A) residential investment spending
B) federal government spending
C) consumer durables spending
D) business investment spending

Question 54

All of the following are understandable economic reasons for reductions in consumer spending on durable goods except

A) economic uncertainty.
B) increases in personal income taxes.
C) declines in wealth levels.
D) falling interest rates.

Question 55

Businesses are less likely to make investment expenditures in order to increase their production or initiate new ventures under which of the following conditions?

A) if the economy appears to be weakening
B) if interest rates increase
C) if corporate income taxes increase
D) all of the above

Question 56

A depression is a particularly severe and protracted recession.

Question 57

An unexpected large increase in the price of crude oil is an example of a supply shock.

Question 58

Most economists agree that a majority of recessions are caused by supply shocks.

Question 59

________ refer to the ordinary fluctuations of real GDP around its long-run trend.