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Published by: Paulina mary Godwin Phillip on Sep 27, 2011
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Multiple-choice questions to accompany
(MIT Press, second edition, 2000)
Copyright 2000 by Peter E. KennedyThis set of multiple-choice questions has been prepared for instructors wishing a bank of such questions for examination purposes, and for students who find studying from suchquestions to be an efficient way of learning. There are three generic types of questions.First in each chapter category below, and most numerous, are questions based on shortnews clips, reflecting the unique flavor of Macroeconomic Essentials for MediaInterpretation. It is because this text's focus on the interpretation of news commentary isso different from traditional texts that it was felt necessary to provide this set of multiple-choice questions. These questions are based almost exclusively on clips found in the textas examples or as end-of-chapter questions, and so students who have worked through thetext should be familiar with them.Second are questions providing numerical examples to be worked out. These questionsare unlike traditional economics numerical multiple-choice questions, and so also reflecta unique character of the text. Again, almost all of these questions are similar tonumerical questions found as end-of-chapter exercises in the text and so students whohave worked through the text should be familiar with them.Third are much smaller numbers of traditional multiple-choice questions, included forcompleteness.As with all multiple-choice questions, the intent is that the best of the possible answersshould be chosen. An asterisk beside a question indicates that that question introducesnew terminology or is more difficult.This document is about 112 pages in length, and contains over 770 multiple-choicequestions, an average of 45 questions per chapter. Although I have tried hard to removeambiguities and errors, some such may remain, for which I apologize and accept fullresponsibility. Suggested corrections, sent to kennedy@sfu.ca, would be appreciated.
Chapter 2: Measuring GDP and the Price Level
21. "Almost all of the fourth quarter increase in GDP wound up as unsold inventory sittingon shelves." If it doesn't get sold, how could it get counted into GDP?a) it is added when measuring GDP, as an element of investment demandb) it is added when measuring GDP, as an element of consumption demandc) it is subtracted when measuring GDP, as an element of investment demandd) it is subtracted when measuring GDP, as an element of consumption demand2. "The oil crisis caused U.S. oil companies' overseas profits to shoot up, producing a jump in ______ that could mislead policy-makers." The blank should bea) GDP b) GNP c) investment d) interest rates*3. "Suppose a new computer is invented that costs one-quarter of existing computersand performs as well. Now when GDP is calculated production of the same number of computers creates only one-quarter as much dollar output - GDP falls!"a) true, both nominal and real GDP fallb) false, real GDP should rise because of adjustments for qualityc) false, real GDP should rise because of price index adjustmentsd) false, real GDP should be unchanged because of price index adjustments4. "Homemakers often feel their work is taken for granted, and advocates in the women'smovement argue that the statistical invisibility of homemakers' work has substantivepolicy implications." What is meant by "statistical invisibility" here?a) homemakers' output is not counted in GDPb) homemakers' output is double-counted in GDPc) homemakers' output is added into GDP at an artificially-low priced) homemakers' output is only counted into GDP if there exists a market counterpart5. "Experts keen on the concept of Green GDP have offered a variety of suggestions tomake economic statistics more environmentally friendly."An example of such a suggestion isa) add the cost of cleaning up after an oil spillb) ignore the cost of cleaning up after an oil spillc) subtract the cost of cleaning up after an oil spilld) add output produced in private vegetable gardens6. "He claimed that a better measure of Turkish national income could be obtained byincluding money sent back to their families by Turks living and working in Germany,something that is currently ignored in the national accounts." This income isa) included in Turkish GDP b) included in Turkish GNPc) included in both Turkish GDP and GNPd) completely ignored in the Turkish accounts7. "Note that the percent change in the GDP deflator is being used as the measure of inflation rather than the more familiar CPI. The GDP deflator is a price index thatsamples _______, not just those paid by consumers." The blank should be
3a) all prices, including importsb) prices of all domestically-produced goods and servicesc) prices of all domestically-produced goods and services except exportsd) prices of all domestically-produced goods and services except those produced bygovernment8. "The government insists that the CPI measures consumer prices, not the cost of living.But don't shoot the CPI - whether bringing good news or bad, it's the best messengerwe've got." During a typical inflationa) the CPI rises by less than the cost of livingb) the CPI rises by more than the cost of livingc) the CPI and the cost of living rise by the same amountd) there is no consistent relationship between rises in the CPI and in the cost of living9. "The rapid development of computers makes it difficult to determine how much of thechange in measured prices of computers is due to pure price change or due to the changein quality of the product. It is clear that the cost of obtaining a given amount of computing capability has been falling." If the national accounts statistician makes properadjustments, this implies that computers should be causing the CPI toa) fall b) rise c) be steady d) move in no predictable direction10. "As best we can tell, responded the central bank governor, the center of the 2 percentinflation target, namely 1 percent, appears to correspond to genuine price stability oncethe various sources of bias in the CPI are allowed for." An example of bias in the CPImeasure is that ita) ignores import prices b) ignores investment goodsc) ignores most quality changes d) values government output at cost "The Commerce department announced that it is shifting from 1987 to 1992 as the baseyear for calculating the nation's real GDP and price index."11. In the new official figures, compared to the old official figures, the 1987number for real GDP isa) smaller b) unchanged c) larger d) not enough information to tell12. In the new official figures, compared to the old official figures, the 1987number for nominal GDP isa) smaller b) unchanged c) larger d) not enough information to tell13. In the new official figures, compared to the old official figures, the 1987number for the price index isa) smaller b) unchanged c) larger d) not enough information to tell14. "The Commerce Department revised its estimate of real GDP to $3.877 trillion, upfrom the earlier estimate of $3.835 trillion. Before adjusting for inflation, GDP was

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