Question 1

Answer the following questions:
a.What does GDP measure, and why is it a useful tool for economists, business decision makers, and government policy makers?
b.Explain at least two important things GDP does not measure.

Accepted Answer

a.
GDP measures the productive output of...

Question 2

Assume that between 1999 and 2009 nominal GDP increased from $7 trillion to $12 trillion and that the GDP deflator rose from 100 to 150. Which of the following expresses GDP for 2009 in terms of 1999 prices?

Accepted Answer

A)  $7.5 trillion
B)  $8.0 trillion
C)  $9.0 trillion
D)  $18.0 trillionE) A) and B)
F) All of the above

Question 3

The change in nominal GDP will always exceed the change in real GDP when nominal GDP is

Accepted Answer

A)  increasing and prices are unchanged.
B)  increasing and prices are decreasing.
C)  decreasing and prices are decreasing.
D)  increasing and prices are increasing.E) A) and B)
F) A) and C)

Question 4

Suppose the consumer price index (CPI)  for Year X is 130. This means the average price of goods and services is

Accepted Answer

A)  currently $130.
B)  130 percent more in Year X than in the base year.
C)  130 percent more in the base year than in Year X.
D)  priced at 30 percent more in Year X than in the base year.E) C) and D)
F) B) and C)

Question 5

A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago.

Accepted Answer

A)  Her real and nominal salary have risen.
B)  Her real and nominal salary have fallen.
C)  Her real salary has risen and her nominal salary has fallen.
D)  Her real salary has fallen and her nominal salary has risen.E) None of the above
F) A) and B)

Question 6

Double counting in the resource cost-income approach to GDP statistics is avoided by

Accepted Answer

A)  correct accounting of the values of exports and imports
B)  choosing only one method to calculate GDP--either the income or the expenditures method
C)  counting only the value added at each stage of a good's production process
D)  counting the value of final and intermediate goods and services
E)  subtracting the total value of intermediate goods and services from the total value of final goods and servicesF) C) and E)
G) B) and D)

Question 7

Government purchases include spending on goods and services by

Accepted Answer

A)  the federal government only.
B)  state and federal governments only.
C)  local, state and federal governments.
D)  local, state and federal governments, as well household spending by employees of those governments.E) B) and C)
F) A) and C)

Question 8

Because GDP does not fully account for improvements in the quality of goods, the GDP calculation

Accepted Answer

A)  tends to overstate the true value of output in the United States.
B)  tends to understate the true value of output in the United States.
C)  provides an accurate value of output in the United States.
D)  measures the value correctly because price changes always capture the value of quality changes.E) B) and C)
F) A) and D)

Question 9

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

Accepted Answer

A)  necessarily raises GDP.
B)  necessarily decreases GDP.
C)  doesn't change GDP because gambling is never included in GDP.
D)  doesn't change GDP because in either case his income is included.E) None of the above
F) All of the above

Question 10

If a country has attracted a relatively large number of foreign workers and a large amount of foreign investment,

Accepted Answer

A)  national income will generally exceed gross national product.
B)  gross national product will generally exceed gross domestic product.
C)  net domestic product will generally exceed gross domestic product.
D)  gross domestic product will generally exceed gross national product.E) A) and B)
F) B) and C)

Question 11

Answer the following questions:
a.In 2004, four major hurricanes hit Florida.Explain how this destruction of property, and the rebuilding that went on afterward, affected GDP.
b.Explain how GDP has trouble accounting for other parts of the economy as well.

Accepted Answer

a.
The goods that are destroyed are not ...

Question 12

Discuss the problems with GDP as a measure of a country's current production and income.

Accepted Answer

First, GDP does not count nonmarket prod...

Question 13

What is the difference between real and nominal GDP? If the president of the United States (or your instructor) asked you to evaluate the economy over the past five years, which one would you use and why?

Accepted Answer

Real GDP is nominal GDP adjusted for the...

Question 14

Until recently, George lived in a home that was newly constructed in 2005. In 2005, he paid $200,000 for the brand new house. He sold the house in 2006 for $225,000. Which of the following statements is correct regarding the sale of the house?

Accepted Answer

A)  The 2006 sale increased 2006 GDP by $225,000 and had no effect on 2005 GDP.
B)  The 2006 sale increased 2006 GDP by $25,000 and had no effect on 2005 GDP.
C)  The 2006 sale increased 2006 GDP by $225,000; furthermore, the 2006 sale caused 2005 GDP to be revised upward by $25,000.
D)  The 2006 sale affected neither 2005 GDP nor 2006 GDP.E) A) and D)
F) All of the above

Question 15

New residential housing is counted in GDP as

Accepted Answer

A)  a durable consumption good.
B)  a household durable good.
C)  an investment good.
D)  an inventory expansion.
E)  a long-term durable good.F) A) and C)
G) A) and B)

Question 16

An automobile manufacturing plant opens in Alabama, and its owner, all of the workers, and all raw materials are from Japan. How would the purchase of an automobile from this plant change U.S. GDP and GNP?

Accepted Answer

A)  It would increase GNP and GDP.
B)  It would increase GNP and leave GDP unchanged.
C)  It would increase GDP and leave GNP unchanged.
D)  It would leave both GDP and GNP unchanged.E) A) and B)
F) B) and C)

Question 17

Over time, GDP may increase as the result of either (i)  expansion in the quantities of goods produced or (ii)  higher prices. Which of the following is true?

Accepted Answer

A)  (i)  will generally increase living standards, but (ii)  will not.
B)  (ii)  will generally increase living standards, but (i)  will not.
C)  Both (i)  and (ii)  will generally increase living standards.
D)  Neither (i)  nor (ii)  will generally increase living standards.E) A) and B)
F) A) and D)

Question 18

In computing GDP, market prices are used to value final goods and services because

Accepted Answer

A)  market prices reflect the values of goods and services to the buyer.
B)  market prices do not change much over time, so it is easy to make comparisons between years.
C)  if market prices are out of line with how people value goods, the government sets price ceilings and price floors.
D)  None of the above is correct; market prices are not used in computing GDP.E) All of the above
F) A) and B)

Question 19

A business produced $10 million of goods in 2010 but sold only $9 million. Is the $1 million increase in inventory counted as part of the 2010 gross domestic product?

Accepted Answer

A)  No, because inventories are intermediate goods.
B)  No, because if these inventories were sold in 2011, they would be counted twice.
C)  Yes, because these inventories are part of the output of the economy in 2010.
D)  Yes, but they will be added to the 2010 GDP only if they are sold in 2011.E) None of the above
F) C) and D)

Question 20

A business spends $10 million on new capital equipment, and during the same year, $7 million of its existing capital wears out. Which of the following is correct?

Accepted Answer

A)  The firm's gross investment is $7 million, and its net investment is $10 million.
B)  The firm's gross investment is $3 million, and its net investment is $7 million.
C)  The firm's gross investment is $7 million, and its net investment is $3 million.
D)  The firm's gross investment is $10 million, and its net investment is $3 million.E) B) and D)
F) A) and B)

Exam 7: Taking the Nations Economic Pulse

Assume that between 1999 and 2009 nominal GDP increased from $7 trillion to $12 trillion and that the GDP deflator rose from 100 to 150. Which of the following expresses GDP for 2009 in terms of 1999 prices?

Correct AnswerverifiedShow Answer

Because GDP does not fully account for improvements in the quality of goods, the GDP calculation

Correct AnswerverifiedShow Answer

Until recently, George lived in a home that was newly constructed in 2005. In 2005, he paid $200,000 for the brand new house. He sold the house in 2006 for $225,000. Which of the following statements is correct regarding the sale of the house?

Correct AnswerverifiedShow Answer

An automobile manufacturing plant opens in Alabama, and its owner, all of the workers, and all raw materials are from Japan. How would the purchase of an automobile from this plant change U.S. GDP and GNP?

Correct AnswerverifiedShow Answer

What is the difference between real and nominal GDP? If the president of the United States (or your instructor) asked you to evaluate the economy over the past five years, which one would you use and why?

Correct AnswerverifiedReal GDP is nominal GDP adjusted for the...View AnswerShow Answer

Discuss the problems with GDP as a measure of a country's current production and income.

Correct AnswerverifiedFirst, GDP does not count nonmarket prod...View AnswerShow Answer

A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago.

Correct AnswerverifiedShow Answer

Answer the following questions: a.What does GDP measure, and why is it a useful tool for economists, business decision makers, and government policy makers? b.Explain at least two important things GDP does not measure.

Correct Answerverifieda.GDP measures the productive output of...View AnswerShow Answer

The change in nominal GDP will always exceed the change in real GDP when nominal GDP is

Correct AnswerverifiedShow Answer

Government purchases include spending on goods and services by

Correct AnswerverifiedShow Answer

Over time, GDP may increase as the result of either (i) expansion in the quantities of goods produced or (ii) higher prices. Which of the following is true?

Correct AnswerverifiedShow Answer

In computing GDP, market prices are used to value final goods and services because

Correct AnswerverifiedShow Answer

Double counting in the resource cost-income approach to GDP statistics is avoided by

Correct AnswerverifiedShow Answer

A business produced $10 million of goods in 2010 but sold only $9 million. Is the $1 million increase in inventory counted as part of the 2010 gross domestic product?

Correct AnswerverifiedShow Answer

Answer the following questions: a.In 2004, four major hurricanes hit Florida.Explain how this destruction of property, and the rebuilding that went on afterward, affected GDP. b.Explain how GDP has trouble accounting for other parts of the economy as well.

Correct Answerverifieda.The goods that are destroyed are not ...View AnswerShow Answer

New residential housing is counted in GDP as

Correct AnswerverifiedShow Answer

A business spends $10 million on new capital equipment, and during the same year, $7 million of its existing capital wears out. Which of the following is correct?

Correct AnswerverifiedShow Answer

If a country has attracted a relatively large number of foreign workers and a large amount of foreign investment,

Correct AnswerverifiedShow Answer

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

Correct AnswerverifiedShow Answer

Suppose the consumer price index (CPI) for Year X is 130. This means the average price of goods and services is

Correct AnswerverifiedShow Answer

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Real GDP is nominal GDP adjusted for the...
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First, GDP does not count nonmarket prod...
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a.
GDP measures the productive output of...
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The goods that are destroyed are not ...
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