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Name Chapter 5 Self Test Quiz
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Question Payments for which of the following are NOT included in government expenditures (G)?
Answer
social Security
national defense
police
Correct Feedback Correct: Thats correct. Payments for Social Security and unemployment insurance are transfer payments.
Incorrect Feedback Incorrect: Incorrect. Transfer payments are not included in G.
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Question A table manufacturer buys wood worth $150 from a lumber company to make the final product, a $200 table. Both firms employ labor and
capital. These operations, ceteris paribus, will cause gross domestic product to rise by
Answer
$150.
$200.
$350.
Correct Feedback Correct: Thats correct. Total sales are $350, intermediate purchases are $150.
Incorrect Feedback Incorrect: Incorrect. GDP is total sales minus intermediate purchases.
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Question A table manufacturer buys wood worth $150 from a lumber company to make the final product, a $200 table. Both firms employ labor and
capital. These operations, ceteris paribus, imply that the value added by the table manufacturer is
Answer
$50.
$150.
$200.
Correct Feedback Correct: Thats correct. The firms sales are $200, intermediate purchases are $150.
Incorrect Feedback Incorrect: Incorrect. Value added by a firm is the difference between its sales and the cost of intermediate inputs.
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Question A countrys gross national income (GNI) is the sum of gross domestic product (GDP) and
Answer
trade balance.
net factor income from abroad.
net unilateral transfers.
Correct Feedback Correct: Thats correct. The higher the net factor income received from abroad, the greater is the GNI.
Incorrect Feedback Incorrect: Incorrect. Adding net unilateral transfers to GNI yields gross national disposable income (GNDI).
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Question Adding the value of net transfers from abroad to gross national income (GNI) yields
Answer
gross national disposable income (GNDI).
gross national expenditure (GNE).
gross national product (GDP).
Correct Feedback Correct: Thats correct. GNDI represents the total income resources available to a country.
Incorrect Feedback Incorrect: Incorrect. The sum indicates the total income resources available to a country.
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Question Gross national expenditure (GNE) consists of consumption (C), investment (I), and government consumption (G). If exports of goods and
services are denoted by EX and imports by IM, gross domestic product is obtained as
Answer
GDP =GNE +EX +IM.
GDP =GNE EX +IM.
GDP =GNE +EX IM.
Correct Feedback Correct: Thats correct. EX IM represents the trade balance.
Incorrect Feedback Incorrect: Incorrect. Add the trade balance to GNE to obtain GDP.
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Question Gross national expenditure (GNE) consists of consumption (C), investment (I), and government consumption (G). If a countrys gross
domestic product (GDP) exceeds GNE, we infer that the country has
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Answer
a trade surplus.
a trade deficit.
negative net unilateral transfers.
Correct Feedback Correct: Thats correct. Exports are greater than imports.
Incorrect Feedback Incorrect: Incorrect. Imports of goods and services (IM) are less than exports (EX).
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Question In a certain year for a country, GNE was $14,000 billion and the trade balance (TB) was $700 billion. The gross domestic product GDP in
that year was
Answer
$13,300 billion.
$14,700 billion.
$15,400 billion.
Correct Feedback Correct: Thats correct. GDP is the sum of GNE and the trade balance.
Incorrect Feedback Incorrect: Incorrect. The trade deficit results in GDP being less than GNE.
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Question Suppose in a year, income receipts from foreigners for factor services exported by a country are $200 billion and income payments made
to foreigners for imported factor services are $150 billion. If the countrys GDP in that year is $5,000 billion, the countrys gross national income
(GNI) is
Answer
$5,350 billion.
$5,200 billion.
$5,050 billion.
Correct Feedback Correct: Thats correct. GNI is the sum of GDP and net factor income received from abroad.
Incorrect Feedback Incorrect: Incorrect. Add net factor income from abroad to GDP to obtain GNI.
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Question In 2006 the United States received income payments of $666 billion from foreigners and made income payments of $636 billion to
foreigners. Since U.S. GDP was $13,247 billion in 2006, U.S. GNI must have been
Answer
$14,217 billion.
$13,277 billion.
$13,217 billion.
Correct Feedback Correct: Thats correct. Since net factor income received from abroad was positive, GNI was larger than GDP.
Incorrect Feedback Incorrect: Incorrect. Net factor income from abroad was $30 billion.
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Question In 2006, U.S. personal consumption expenditures (C) were $9,269 billion, gross private domestic investment (I) was $2,213 billion,
government consumption (G) was $2,528 billion and the trade balance (TB) was $763 billion. Accordingly, gross national expenditure (GNE) in
2006 was
Answer
$13,810 billion.
$14,010 billion.
$15,010 billion.
Correct Feedback Correct: Thats correct. GNE is the sum of C, I and G.
Incorrect Feedback Incorrect: Incorrect. The sum of C, I and G yields GNE.
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Question In 2006, U.S. personal consumption expenditures (C) were $9,269 billion, gross private domestic investment (I) was $2,213 billion,
government consumption (G) was $ 2,528 billion and the trade balance (TB) was $763 billion. Accordingly, gross domestic product (GDP) in 2006
was
Answer
$13,247 billion.
$13,847 billion.
$14,147 billion.
Correct Feedback Correct: Thats correct. GDP is the sum of C, I, G and TB.
Incorrect Feedback Incorrect: Incorrect. The sum of GNE and TB yields GDP.
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Question In 2006, U.S. trade balance (TB) was $763 billion, gross domestic product (GDP) was $13,247 billion and net factor income from abroad
(NFIA) was $30 billion. Accordingly, gross national income (GNI) in 2006 was
Answer
$13,977 billion.
$13,847 billion.
$13,277 billion.
Correct Feedback Correct: Thats correct. GNI is the sum of GDP and NFIA.
Incorrect Feedback Incorrect: Incorrect. Adding NFIA to GDP yields gross national income.
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Question In 2006, U.S. gross domestic product (GDP) was $13,247 billion, net factor income from abroad (NFIA) was $30 billion, and net unilateral
transfers (NUT) were $80 billion. Accordingly, gross national disposable income (GNDI) in 2006 was
Answer
$13,877 billion.
$13,547 billion.
$13,197 billion.
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Correct Feedback Correct: Thats correct. GNDI is the sum of GNI and NUT.
Incorrect Feedback Incorrect: Incorrect. Adding NUT to GNI yields gross national disposable income.
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Question Private saving is represented by
Answer
T G.
Y C G.
Y T C.
Correct Feedback Correct: Thats correct. If private consumption exceeds after-tax disposable income, private saving will be negative.
Incorrect Feedback Incorrect: Incorrect. Y-T represents after-tax disposable income.
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Question Consider the relationship between a countrys saving, investment and current account balance. If saving increases by $100 billion, ceteris
paribus, the current account balance will
Answer
decrease by $100 billion.
decrease by $200 billion.
increase by $100 billion.
Correct Feedback Correct: Thats correct. CA =S I.
Incorrect Feedback Incorrect: Incorrect. Since I is unchanged, an increase in S is accompanied by the same increase in CA.
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Question A country that has a current account surplus will
Answer
buy foreign assets and be a net borrower.
buy foreign assets and be a net lender.
sell foreign assets and be a net borrower.
Correct Feedback Correct: Thats correct. China is an example.
Incorrect Feedback Incorrect: Incorrect. The country has a deficit in its asset accounts.
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Question In 2006 the U.S. had exports of assets of $1,860 billion and imports of assets of $1,055 billion. On their own, these financial flows would
have
Answer
reduced U.S. external wealth by $1,860 billion in one year.
reduced U.S. external wealth by $804 billion in one year.
increased U.S. external wealth by $804 billion in one year.
Correct Feedback Correct: Thats correct. The net capital inflows in 2006 reflect the large U.S. current account deficit in 2006.
Incorrect Feedback Incorrect: Incorrect. Net capital inflows lead to a decrease in external wealth.
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Question Countries with a current account deficit will
Answer
be net buyers of assets and will see an increase in their external wealth.
be net sellers of assets and will see an increase in their external wealth.
be net sellers of assets and will see a decrease in their external wealth.
Correct Feedback Correct: Thats correct. A current account deficit will be accompanied by capital inflows.
Incorrect Feedback Incorrect: Incorrect. Capital inflows imply an export of assets.
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Question Denoting the home capital stock (all non-financial assets) by K, the amount owed to home by foreigners by A, and the amount owed
foreigners by home by L, a countrys total wealth may be written as
Answer
K +(A +L).
(A L) K.
K +(A L).
Correct Feedback Correct: Thats correct. External wealth is denoted by A L.
Incorrect Feedback Incorrect: Incorrect. Total wealth is the sum of capital stock and external wealth.
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