1. Suppose the total market value of all final goods and services produced in a particular country in 2006 is $500 billion and the total market value of final goods and services sold is $450 billion. We can conclude that:
A. GDP in 2006 is $450 billion.
B. NDP in 2006 is $450 billion.
-C. GDP in 2006 is $500 billion.
D. inventories in 2006 fell by $50 billion.
2. By summing the dollar value of all market transactions in the economy we would:
A. be determining the market value of all resources used in the production process.
-B. obtain a sum substantially larger than the GDP.
C. be determining value added for the economy.
D. be measuring GDP.
3. Final goods and services are
A. goods and services that are unsold and therefore added to inventories.
B. goods and services whose value has been adjusted for changes in the price level.
-C. goods and services purchased by ultimate users, rather than for resale or further processing.
D. the excess of U.S. exports over U.S. imports.
4. In national income accounting, consumption expenditures include purchases of:
A. both new and used consumer goods.
-B. automobiles for personal use, but not houses.
C. consumer durable and nondurable goods, but not services.
D. consumer nondurable goods and services, but not consumer durable goods.
5. Gross investment refers to:
A. private investment minus public investment.
-B. net investment plus replacement investment.
C. net investment after it has been “inflated” for changes in the price level.
D. net investment plus net exports.
6. Which of the following is not economic investment?
A. the purchase of a drill press by the Ajax Manufacturing Company
-B. the purchase of 100 shares of AT&T by a retired business executive
C. construction of a suburban housing project
D. the piling up of inventories on a grocer’s shelf
7. As defined in national income accounting, investment includes:
-A. business expenditures on machinery and equipment.
B. all consumption.
C. imports, but not exports.
D. all nonfood items.
8. Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is:
A. $180 billion.
B. $190 billion.
C. $200 billion.
-D. $210 billion.
9. In calculating GDP, governmental transfer payments, such as social security or unemployment compensation, are:
-A. not counted.
B. counted as investment spending.
C. counted as government spending.
D. counted as consumption spending.
10. In national income accounting, government purchases include:
-A. purchases by Federal, state, and local governments .
B. purchases by the Federal government only.
C. government transfer payments.
D. purchases of goods for consumption, but not public capital goods.
11. In the treatment of U.S. exports and imports, national income accountants:
A. subtract exports, but add imports, in calculating GDP.
B. subtract both exports and imports in calculating GDP.
C. add both exports and imports in calculating GDP.
-D. add exports, but subtract imports, in calculating GDP.
12. In calculating the GDP national income accountants:
A. treat inventory changes as an adjustment to personal consumption expenditures.
B. ignore inventories because they do not represent final goods.
C. subtract increases in inventories or add decreases in inventories.
-D. add increases in inventories or subtract decreases in inventories.
13. GDP differs from NDP in that:
A. GDP is based on gross exports, while NDP is based on net exports.
B. GDP includes, but NDP excludes, taxes on production and imports.
C. net investment is used in calculating GDP and gross investment is used in calculating NDP.
-D. gross investment is used in calculating GDP and net investment is used in calculating NDP.
14. The concept of net domestic investment refers to:
A. the amount of machinery and equipment used up in producing the GDP in a specific year.
B. the difference between the market value and book value of outstanding capital stock.
C. gross domestic investment less net exports.
-D. total investment less the amount of investment goods used up in producing the year’s output.
15. If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country’s capital stock:
-A. may have either increased or decreased.
B. increased by $65 billion.
C. increased by $55 billion.
D. decreased by $55 billion.
Answer the next question(s) on the basis of the following data. All figures are in billions of dollars:
16. Refer to the above data. GDP is:
17. Refer to the above data. NDP is:
Answer the next question(s) on the basis of the following data. All figures are in billions of dollars.
18. Refer to the above data. NDP is:
19. Refer to the above data. NI is:
20. Value added refers to:
A. any increase in GDP that has been adjusted for adverse environmental effects.
B. the excess of gross investment over net investment.
-C. the difference between the value of a firm’s output and the value of the inputs it has purchased from others.
D. the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.
21. Gross domestic product (GDP) measures and reports output:
A. as an index number.
B. in percentage terms.
-C. in dollar amounts.
D. in quantities of physical units (for example, pounds, gallons, and bushels).
22. If intermediate goods and services were included in GDP:
A. the GDP would then have to be deflated for changes in the price level.
B. nominal GDP would exceed real GDP.
-C. the GDP would be overstated.
D. the GDP would be understated.
23. Which of the following is a final good or service?
-A. a haircut
B. fertilizer purchased by a farm supplier
C. diesel fuel bought for a delivery truck
D. Chevrolet windows purchased by a General Motors assembly plant
24. Which of the following do national income accountants consider to be investment?
A. the purchase of an automobile for private, nonbusiness use
-B. the purchase of a new house
C. the purchase of corporate bonds
D. the purchase of gold coins
25. Suppose that inventories were $40 billion in 2003 and $50 billion in 2004. In 2004, accountants would:
-A. add $10 billion to other elements of investment in calculating total investment.
B. subtract $10 billion from other elements of investments in calculating total investment.
C. add $45 billion (= $90/2) to other elements of investment in calculating total investment.
D. subtract $45 billion (= $90/2) from other elements of investment in calculating total investment.
26. Government purchases include government spending on:
-A. government consumption goods and public capital goods.
B. government consumption goods only.
C. public capital goods only.
D. government consumption goods, public capital goods, and transfer payments.
27. Transfer payments are:
A. excluded when calculating GDP because they only reflect inflation.
-B. excluded when calculating GDP because they do not reflect current production.
C. included when calculating GDP because they are a category of investment spending.
D. included when calculating GDP because they increase the spending of recipients.
28. The ZZZ Corporation issued $25 million in new common stock in 2004. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment:
A. of $7 million has occurred.
B. of $25 million has occurred.
-C. of $18 million has occurred.
D. has not occurred.
29. Consumption of fixed capital (depreciation) can be determined by:
A. adding taxes on production and imports to NDP.
-B. subtracting NDP from GDP.
C. subtracting net investment from GDP.
D. adding net investment to gross investment.
30. A price index is:
-A. a comparison of the price of a market basket from a fixed point of reference.
B. a comparison of real GDP in one period relative to another.
C. the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period.
D. a ratio of real GDP to nominal GDP.
31. Suppose a nation’s 2003 nominal GDP was $972 billion and the general price index was 90. To make the 2003 GDP comparable with the base year GDP, the 2003 GDP must be:
A. adjusted downward to $678 billion.
B. deflated to $896 billion.
-C. inflated to $1080 billion.
D. deflated to $1080 billion.
32. Suppose nominal GDP in 2002 was $100 billion and in 2003 it was $260 billion. The general price index in 2002 was 100 and in 2003 it was 180. Between 2002 and 2003 the real GDP rose by:
A. 160 percent.
-B. 44 percent.
C. 37 percent.
D. 12 percent.
33. Historically, real GDP has increased less rapidly than nominal GDP because:
A. price indices have not reflected improvements in product quality.
-B. the general price level has increased.
C. technological progress has resulted in more efficient production.
D. the general price level has declined.
34. Nominal GDP was $130 and $150 in years 1 and 2 respectively. Real GDP was $100 and $110 in years 1 and 2 respectively. On the basis of this information we can conclude that:
-A. the price level increased between years 1 and 2.
B. more intermediate goods were produced in year 1 than in year 2.
C. the increase in nominal GDP between years 1 and 2 understated the increase in production which occurred.
D. the price level declined between years 1 and 2.
35. If nominal GDP rises:
-A. real GDP may either rise or fall.
B. real GDP must fall.
C. we can be certain that the price level has risen.
D. real GDP must also rise.
36. Real GDP is:
A. the nominal value of all goods and services produced in the economy.
-B. the nominal value of all goods and services produced in the domestic economy adjusted for inflation or deflation.
C. that aggregate output that is produced when the economy is operating at full employment.
D. always greater than nominal GDP.
37. If a nation’s real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, it real GDP per capita will:
-A. remain constant.
B. fall by 6 percent.
C. rise by 6 percent.
D. fall by 12 percent.
38. The number of years required for real GDP to double can be found by:
A. dividing the annual growth rate by .07.
B. multiplying the annual growth rate by 70.
-C. dividing 70 by the annual growth rate.
D. adding 14 to annual growth rate.
39. In the United States, business cycles have occurred against a backdrop of a long-run trend of:
A. declining unemployment.
B. stagnant productivity growth.
-C. rising real GDP.
D. rising inflation.
40. During a severe recession, we would expect output to fall the most in:
A. the health-care industry.
B. the clothing industry.
-D. the construction industry.
41. The achievement of full employment through time will:
A. diminish labor productivity.
B. reduce the level of investment as a percentage of GDP.
-C. increase the realized rate of economic growth.
D. have no impact on the rate of economic growth.
42. Suppose that an economy’s labor productivity and total worker-hours each grew by 4 percent between year 1 and year 2. We could conclude that this economy’s:
A. long-run aggregate supply curve shifted to the left.
B. real GDP remained constant.
-C. production possibilities curve shifted outward.
D. capital stock increased by 4 percent.
43. Which of the following would not be expected to increase labor productivity?
A. technological advance
B. the acquisition of more education and training by the labor force
-C. an increase in the size of the labor force
D. the realization of economies of scale
44. Labor productivity is defined as:
-A. total output/worker-hours.
B. nominal GDP minus real GDP.
C. the ratio of real capital to worker-hours.
D. the annual increase in nominal GDP per worker.
45. Which of the following is correct?
A. total output = labor productivity/worker-hours
B. labor productivity = worker-hours/total output
-C. total output = worker-hours labor productivity
D. worker-hours = labor productivity total output
46. Suppose total output (real GDP) is $4000 and labor productivity is 8. We can conclude that:
A. real GDP per capita must be $500.
B. the price-level index must be greater than 100.
C. nominal GDP must be $500.
-D. the number of worker-hours must be 500.
47. Suppose total output (real GDP) is $10,000 and worker-hours are 20,000. We can conclude that:
A. real GDP per capita must be $200,000.
B. the price-level index must be less than 100.
-C. labor productivity must be 0.5.
D. nominal GDP must be between $10,000 and $20,000.
48. Other things equal, which of the following would increase the rate of economic growth, as measured by changes in real GDP?
A. A decline in the average length of the work week.
B. A decrease in the labor force participation rate.
-C. An increase in the size of the working age population.
D. A decline in the amount of capital per worker.
49. Refer to the above diagram. The shifts in long-run and short-run aggregate supply curves from AS1 and AS’1 to AS2 and AS’2 would most likely result from:
A. an increase in the price level.
B. a reduction in aggregate demand.
-C. an improvement in technology.
D. deterioration of the infrastructure.
50. In the aggregate demand-aggregate supply model, economic growth is represented by a:
A. leftward shift of the long-run aggregate supply curve.
B. leftward shift of the aggregate demand curve.
-C. rightward shift of the long-run aggregate supply curve.
D. rightward shift of the short-run aggregate supply curve resulting from a decline in the price level.
51. In the United States real GDP:
-A. has grown faster than real GDP per capita.
B. has grown faster in recent years than has nominal GDP.
C. per capita has grown faster than real GDP.
D. and real GDP per capita have grown at nearly identical rates.
52. The largest contributor to increases in the productivity of American labor is:
A. the reallocation of labor from agriculture to manufacturing.
B. improvements in labor quality.
C. increases in the quantity of capital.
-D. technological advance.
53. Which of the following statements is correct?
A. The U.S. population has increased more rapidly than real GDP in recent decades.
B. Improved education and training of labor is the most important source of U.S. productivity growth.
C. The average American factory worker has about 16 years of formal education.
-D. The amount of real capital used per worker has increased historically in the United States.
54. The historical reallocation of labor from agriculture to manufacturing in the United States has:
A. been inflationary.
B. had no effect on the average productivity of labor.
-C. increased the average productivity of labor.
D. reduced the average productivity of labor.
55. Which of the following is the largest contributor to the growth of labor productivity in the United States?
-A. technological advance
B. education and training of labor
C. economies of scale
D. improved resource allocation
56. A nation’s infrastructure refers to:
A. its ability to realize economies of scale.
B. its stock of technological knowledge.
-C. public capital goods such as highways and sanitation systems.
D. the productivity of its labor force.
57. Economies of scale refer to:
A. the idea that proprietorships are less bureaucratic and therefore more efficient than corporations.
B. public investments in highways, schools, utilities, and such.
-C. the fact that large producers may be able to use more efficient technologies than smaller producers.
D. the reallocation of labor from less-productive to more-productive uses.
58. Other things equal, if a full-employment economy reallocated a substantial quantity of its resources to capital goods, we would expect:
A. present consumption to rise.
B. future consumption to fall.
C. a lower rate of growth of real GDP.
-D. labor productivity to rise.
59. The annual growth of U.S. labor productivity:
A. was greater between 1973 and 1995 than between 1995 and 2005.
-B. was greater between 1995 and 2005 than between 1973 and 1995.
C. was negative in the late 1990s.
D. averaged nearly 5 percent in the 1990s.
60. The New Economy is characterized by:
A. a higher trend rate of saving.
B. a higher natural rate of unemployment.
-C. a higher trend rate of productivity growth.
D. the end of the business cycle.
61. Network effects are:
-A. increases in the value of a product to each user, including existing users, as the total number of users rises.
B. reductions in per unit production cost as firms learn by doing.
C. increases in demand resulting from products being mentioned positively in a television program.
D. the change in real GDP resulting from a change in investment or government spending.
62. All of the following are economic implications of the New Economy except:
A. a lower natural rate of unemployment.
B. higher rates of productivity advance.
-C. an end to the business cycle.
D. a greater rate of economic growth.
63. Proponents of the idea of a New Economy say that:
A. the United States is entering an era of high structural unemployment due to rapid technological change.
B. technological advance creates its own supply, which in turn creates its own demand.
-C. innovations in computers and communications, together with global capitalism, are greatly boosting U.S. productivity and the economy’s potential economic growth rate.
D. technological change will require more central planning and government regulation.
64. Critics of the idea of a New Economy say that:
-A. it is too early to predict whether recent boosts in U.S. productivity are permanent or transitory.
B. global capitalism is a media fiction, not an economic reality.
C. the growth of service productivity is severely understated.
D. many of the factors that slowed productivity in the 1973–1995 period have now reversed themselves.
65. Proponents of economic growth say that pollution:
A. is an inevitable by-product of growth.
-B. occurs, not because of growth, but because common properties are treated as free goods.
C. declines as a country moves from agriculture to industry.
D. is detrimental to economic growth.
66. Critics of economic growth:
A. contend that growth and industrialization reduce pollution.
-B. argue that economic growth does not resolve socioeconomic problems such as income inequality.
C. point out that growth results in greater economic security for workers.
D. say that its benefits accrue nearly exclusively to white males.
Use the list below to answer the following questions:
1. Improvements in technology
2. Increases in the supply (stock) of capital goods
3. Purchases of expanding output
4. Obtaining the optimal combination of goods, each at least-cost production
5. Increases in the quantity and quality of natural resources
6. Increases in the quantity and quality of human resources
67. Refer to the above list. As distinct from the demand and efficiency factors of economic growth, the supply factors of economic growth are:
A. 2, 5, and 6 only.
B. 2, 4, 5, and 6 only.
-C. 1, 2, 5, and 6 only.
D. 1, 3, 4 only.
68. Refer to the above list. As distinct from the supply factors and efficiency factor of economic growth, the demand factor of economic growth is:
A. 1 only.
B. 4 only.
C. 1 and 3 only.
-D. 3 only.
69. Refer to the above list. As distinct from the supply factors and demand factor of economic growth, the efficiency factor of economic growth is:
A. 1 only.
-B. 4 only.
C. 1 and 3 only.
D. 3 only.
70. Economic growth can be portrayed as a:
-A. outward shift of the production possibilities curve.
B. inward shift of the production possibilities curve.
C. movement from a point on to a point inside a production possibilities curve.
D. movement from one point to another point on a fixed production possibilities curve.
71. Suppose that an economy’s labor productivity rose by 3 percent and its total worker-hours remained constant between year 1 and year 2. We could conclude that this economy’s:
A. capital stock increased.
-B. real GDP increased.
C. production possibilities curve shifted inward.
D. long-run aggregate supply curve shifted to the left.
72. More than half the growth of real GDP in the United States is caused by:
A. a falling price level.
B. the reallocation of labor from manufacturing to agriculture.
-C. increases in the productivity of labor.
D. the use of fewer inputs of labor.
73. Other things equal, in which of the following instances would the increase in labor productivity be the greatest?
A. the stock of real capital and inputs of labor increase proportionately
-B. the increase in the stock of real capital exceeds the increase in inputs of labor
C. the increase in inputs of labor exceeds the increase in the stock of real capital
D. inputs of labor increase and the stock of real capital remains constant
74. Increases in the value of a product to each user, including existing users, as the total number of users rises are called:
A. information cascades.
B. learning effects.
-C. network effects.
D. scale economies.
75. All of the following are sources of increasing returns and economies of scale except:
A. network effects.
-B. the multiplier effect.
D. simultaneous consumption.
76. Critics of the idea of the New Economy say that:
-A. it is too soon to judge whether the high productivity advances between 1995 and 2005 are permanent or transitory.
B. the difficulties of the dot.com companies in 2001 disproves the idea of the New Economy.
C. between 1995 and 2005 the economy moved below its natural rate of unemployment and paid the price in the form of accelerating inflation.
D. the improved growth performance of the U.S. economy between 1995 and 2005 resulted from adroit monetary policy and not from increases in productivity.
77. According to the adherents of the New Economy view, the above-normal economic growth in the United States between 1995 and 2005 was caused by:
A. increases in the rate of personal saving.
-B. increased entrepreneurial activity, application of information technology, and global competition.
C. rising Federal budget surpluses that reduced real interest rates.
D. expansionary monetary policy.
78. The claim that innovations in information technology, together with global capitalism, are leading to a long-term increase in U.S. productivity growth is known as the:
A. rational expectations theory.
B. theory of creative destruction.
C. new-Keynesian perspective.
-D. New Economy view.
79. Which of the following is a true statement?
-A. Economists who support economic growth say that it is the most practical route to the higher standards of living that the vast majority of people desire.
B. Adherents of the view that the United States has achieved a New Economy contend that the business cycle is dead.
C. Most economists believe that increases in real GDP actually produce decreases in overall economic well-being because of spillover costs.
D. Mainstream economists disagree as whether the rate or productivity growth was higher between 1995 and 2005 than between 1973 and 1995.
80. Proponents of economic growth make all of the following arguments except:
A. Growth is the basic means of improving living standards.
B. It is easier to reduce poverty when the economy is growing than when it is not.
-C. There is a direct relationship between a growing real GDP and rising pollution.
D. Growth provides an economic environment favorable to education and self-fulfillment.
81. (Consider This) The rapid rise in the number of women in the paid U.S. workforce over the past several decades has:
A. shifted the U.S. production possibilities curve inward (to the left).
B. moved the U.S. economy from a point inside its production possibilities curve to a point on the curve.
C. reduced income inequality in the United States.
-D. shifted the U.S. production possibilities curve outward (to the right) and expanded real GDP.
82. Between 1995 and 2005, the U.S. productivity rate:
A. was slightly negative, mainly because of record levels of employment growth.
-B. picked up substantially compared to prior years, leading some economists to predict a long-lasting resurgence of productivity growth.
C. slowed considerably relative to the high rates between 1990 and 1995.
D. reached record low levels for the United States’ economy, leading some economists to talk of “secular stagnation.”
83. The physical export of motorcycles from the United States to Mexico best illustrates a:
-A. trade flow.
B. resource flow.
C. financial flow.
D. technology flow.
84. The spending by Americans while traveling in Europe best illustrates a:
A. trade flow.
B. labor flow.
-C. financial flow.
D. technology flow.
85. The emigration of software designers from India to the United States best illustrates a(n):
A. trade flow.
-B. resource flow.
C. financial flow.
D. information flow.
86. In recent years the United States has:
A. exported more goods and services than it has imported.
-B. imported more goods and services than it has exported.
C. realized an approximate balance in its imports and exports.
D. experienced a falling absolute dollar amount of imports and a rising absolute dollar amount of exports.
87. According to the concept of comparative advantage, a good should be produced in that nation where:
A. its domestic opportunity cost is greatest.
B. money is used as a medium of exchange.
-C. its domestic opportunity cost is least.
D. the terms of trade are maximized.
Answer the next question(s) on the basis of the following production possibilities data for Landia and Scandia:
88. Refer to the above data. The domestic opportunity cost of 1 fish in Scandia is:
A. 12 chips.
B. 4 chips.
-C. 3 chips.
D. 1 chip.
89. Refer to the above data. On the basis of the production possibilities data shown:
-A. Landia has a comparative advantage in chips while Scandia has a comparative advantage in fish.
B. Landia has a comparative advantage in fish while Scandia has a comparative advantage in chips.
C. both Landia and Scandia have a comparative advantage in fish.
D. both Landia and Scandia have a comparative advantage in chips.
90. Refer to the above data. If Landia and Scandia fully specialize based on comparative advantage, their aggregate output will be:
A. 48 chips and 8 fish.
-B. 40 chips and 16 fish.
C. 36 chips and 10 fish.
D. 42 chips and 12 fish.