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Chapter 22 Measuring a Nations Income

Test B
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Microeconomics is the study of a. the government and its role in the economy. b. how households and firms make decisions, and how they interact in markets. c. economy-wide topics such as inflation, unemployment and economic growth. d. economics as if you were looking at the economy with a telescope to get the big picture. ANS !"# b. how households and firms make decisions, and how they interact in markets. $%&!# M S!'$()N# (N$ )*+!'$(,!# "AN-)M# %
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/-& can measures both an economy0s total income and total e1penditure because they are a. always e2ual because rules in accounting always make things e2ual. b. e2ual only when all goods and services produced are sold. c. e2ual because only households purchase goods and services. d. always e2ual since every transaction has both a buyer and a seller. ANS !"# d. always e2ual since every transaction has both a buyer and a seller. $%&!# M S!'$()N# 1 )*+!'$(,!# 1 "AN-)M# %
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hich of the following represents /-&4 '5(5/ / 5 ( 5 N6 ( 5 ' 5 N6 ' 5 ( 5 / 5 N6 ANS !"# d. ' 5 ( 5 / 5 N6 $%&!# M S!'$()N# 1 )*+!'$(,!# 1 "AN-)M# % a. b. c. d. NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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hich of the following would be counted in the calculation of /-&4 the sale of a rare coin to a coin collector homes that are rebuilt after being completely destroyed by a hurricane the sale of a 1899 :ord :airmont. the sale of cocaine in the black market. ANS !"# b. homes that are rebuilt after being completely destroyed by a hurricane $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# % a. b. c. d.
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Aaron and Adam, who are both full-time students, have each been doing work on their own cars. $hen Adam decides to hire Aaron to do his oil changes, and in turn, Aaron hires Adam to keep his car clean. As a result of this change, /-& a. rises. b. falls. c. is unaffected because the same work is being done as before. d. is unaffected because Adam and Aaron are full-time students. ANS !"# a. rises. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %

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.;. 'hapter ..>Measuring a Nation0s (ncome NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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$he largest component of /-& is a. net e1ports. b. consumption. c. government purchases. d. investment. ANS !"# b. consumption. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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(f the value of intermediate goods were used to calculate /-& instead of final goods, then /-& would be a. over-estimated, because of double counting. b. under-estimated because of all the goods and services missed in the calculations. c. too difficult to measure because of all the goods and services produced in the economy each year. d. the same, since it doesn0t matter whether intermediate goods or final goods are used in the calculations. ANS !"# a. over-estimated, because of double counting. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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+im buys a new Mustang in August 1888 and then sells it to +ohn in +une .AA1. As a result, a. the value of the car will be included in .AA1 /-& only, since that was the year of the last sale. b. 1888 /-& will include the value of the car, and .AA1 /-& will include the value of the car minus depreciation. c. 1888 /-& will include the value of the car, but .AA1 /-& will not. d. both 1888 /-& and .AA1 /-& will include the value of the car since it was sold in both years. ANS !"# c. 1888 /-& will include the value of the car, but .AA1 /-& will not. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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hich two of the following are considered measures of income for an economy4 gross national product and net national product net national profits and personal income gross national product and net national investment disposable personal income and personal profits ANS !"# a. gross national product and net national product $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# % a. b. c. d.
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&ersonal income is defined as a. after-ta1 proprietors0 income. b. the total income earned by a nation0s permanent residents. c. the income that households and non-corporate businesses receive. d. the total income earned by a nation0s residents minus depreciation. ANS !"# b. the total income earned by a nation0s permanent residents. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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"etained earnings are the part of income that a. households retain after paying ta1es. b. business retain after paying ta1es. c. corporations pay to their owners in the form of dividends. d. corporations do not pay to their owners in the form of dividends. ANS !"# d. corporations do not pay to their owners in the form of dividends. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %

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'hapter ..>Measuring a Nation0s (ncome .;3


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(f the government reports that B/-& increased at an annual rate of 7.A percent for the fourth 2uarter of .AAA,C then /-& increased by a. 1.A percent during .AAA. b. 19.A percent during .AAA. c. 7.A percent during the fourth 2uarter of .AAA. d. 1.A percent during the fourth 2uarter of .AAA. ANS !"# d. 1.A percent during the fourth 2uarter of .AAA. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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(f you buy a carton of chocolate chip cookie dough ice cream in your favorite grocery store a. both /-& and consumption spending will be higher. b. /-& will be higher, but consumption spending will be unchanged. c. /-& will be unchanged, but consumption spending will be higher. d. since your spending on the ice cream became the store0s income, /-& would not change. ANS !"# a. both /-& and consumption spending will be higher. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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Net e1ports will be positive when a. imports are larger than e1ports. b. e1ports are larger than imports. c. imports are e2ual to e1ports. d. /-& increases. ANS !"# b. e1ports are larger than imports. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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$ransfer payments are a. paychecks which are automatically deposited in bank accounts. b. on-line bill payment services offered by many large banks. c. moving e1penses when a worker is transferred by an employer to a new location. d. government spending that does not reflect payment for currently produced goods or services. ANS !"# d. government spending that does not reflect payment for currently produced goods or services. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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(f =allmark builds a plant in Me1ico, the production from that plant would be a. included in D.S. /N& but not /-&. b. included in D.S. /-& but not /N&. c. included in both D.S. /-& and /N&. d. not included in either D.S. /-& or /N& but only in Me1ico0s production. ANS !"# a. included in D.S. /N& but not /-&. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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(f a construction company in +apan purchases a D.S. built bulldoEer from 'aterpillar, D.S. /-& a. is the same but D.S. /N& increases. b. increases since e1ports are included in /-&. c. is unaffected since e1ports are not included in /-&. d. decreases since the bulldoEer could have been purchased by a D.S. company. ANS !"# b. increases since e1ports are included in /-&. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %

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.;7 'hapter ..>Measuring a Nation0s (ncome


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(n 188@, D.S. /-& was a. F@;A billion. b. F1,39? billion. c. F;,@A@ billion. d. F@,;11 billion. ANS !"# d. F@,;11 billion. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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"eal /-& a. evaluates current production at current prices. b. evaluates current production at prices in some base year. c. is not a valid measure of the economy0s performance. d. is a measure of the value of goods only, but not services. ANS !"# b. evaluates current production at prices in some base year. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# % .AAA G*ase %earH ')"N "('!
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&"('! F. F.

IDAN$($% 3A .A

.AA1 G'urrent %earH &"('! ')"N F7 "('! F3

IDAN$($% ;A 7A

Dsing the information in the table, what is the nominal /-& and the real /-& for .AA14 a. $he nominal /-& is F1AA and real /-& is F1AA. b. $he nominal /-& is F1@A and real /-& is F1AA. c. $he nominal /-& is F.7A and real /-& is F1@A. d. $he nominal /-& is F3.A and real /-& is F1@A. ANS !"# d. $he nominal /-& is F3.A and real /-& is F1@A. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %
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Dsing the information in the table, the /-& deflator would be a. 1AA. b. 1;.. c. 1?@. d. 187. ANS !"# c. 1?@. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %
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/-& is a good but not perfect measure of economic well-being because it leaves out each of the following !6'!&$ a. leisure. b. volunteer work. c. medical services. d. the 2uality of the environment. ANS !"# c. medical services. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %
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(f nominal /-& is F1A trillion and the /-& deflator is 1.;, real /-& is a. F9 trillion. b. F@ trillion. c. F1A trillion. d. F1..; trillion. ANS !"# b. F@ trillion. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %

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'hapter ..>Measuring a Nation0s (ncome .;; NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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(f we want to know the amount of e1penditures for an average individual in a country, we should look at a. real /-&. b. nominal /-&. c. /-& per person. d. current /-&. ANS !"# c. /-& per person. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %
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(nternational /-& data show that a. a nation0s /-& is closely associated with its citiEens0 standard of living. b. there is no relationship between /-& and the economic well-being of citiEens. c. poor nations actually might enJoy a higher standard of living than do rich nations. d. there are few real differences in living standards around the world, in spite of the large differences in /-& among nations. ANS !"# a. a nation0s /-& is closely associated with its citiEens0 standard of living. $%&!# M S!'$()N# ; )*+!'$(,!# ; "AN-)M# %
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(t is especially difficult to measure /-& in "ussia because a. no consistent national income accounting standards e1ist. b. the statisticians believe that producers are e1aggerating the siEe of output. c. a large part of the economy is underground and hidden from the statisticians. d. only government officials are allowed access to statistics on the economy. ANS !"# c. a large part of the economy is underground and hidden from the statisticians. $%&!# M S!'$()N# ; )*+!'$(,!# ; "AN-)M# %

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ANS !"# b. how households and firms make decisions, and how they interact in markets. $%&!# M S!'$()N# (N$ )*+!'$(,!# "AN-)M# %
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ANS !"# d. always e2ual since every transaction has both a buyer and a seller. $%&!# M S!'$()N# 1 )*+!'$(,!# 1 "AN-)M# %
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ANS !"# d. ' 5 ( 5 / 5 N6 $%&!# M S!'$()N# 1 )*+!'$(,!# 1 "AN-)M# %


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ANS !"# b. homes that are rebuilt after being completely destroyed by a hurricane $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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ANS !"# a. rises. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %


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ANS !"# b. consumption. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %


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ANS !"# a. over-estimated, because of double counting. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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ANS !"# c. 1888 /-& will include the value of the car, but .AA1 /-& will not. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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ANS !"# a. gross national product and net national product $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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ANS !"# b. the total income earned by a nation0s permanent residents. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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ANS !"# d. corporations do not pay to their owners in the form of dividends. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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ANS !"# d. 1.A percent during the fourth 2uarter of .AAA. $%&!# M S!'$()N# . )*+!'$(,!# . "AN-)M# %
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ANS !"# a. both /-& and consumption spending will be higher. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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ANS !"# b. e1ports are larger than imports. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %

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ANS !"# d. government spending that does not reflect payment for currently produced goods or services. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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ANS !"# a. included in D.S. /N& but not /-&. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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ANS !"# b. increases since e1ports are included in /-&. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %
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ANS !"# d. F@,;11 billion. $%&!# M S!'$()N# 3 )*+!'$(,!# 3 "AN-)M# %


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ANS !"# b. evaluates current production at prices in some base year. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %
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ANS !"# d. $he nominal /-& is F3.A and real /-& is F1@A. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %
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ANS !"# c. 1?@. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %


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ANS !"# c. medical services. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %


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ANS !"# b. F@ trillion. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %


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ANS !"# c. /-& per person. $%&!# M S!'$()N# 7 )*+!'$(,!# 7 "AN-)M# %


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ANS !"# a. a nation0s /-& is closely associated with its citiEens0 standard of living. $%&!# M S!'$()N# ; )*+!'$(,!# ; "AN-)M# %
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ANS !"# c. a large part of the economy is underground and hidden from the statisticians. $%&!# M S!'$()N# ; )*+!'$(,!# ; "AN-)M# %