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Chapter 2 and 3
Chapter 2
TRUE/FALSE
1. Nominal GDP measures the dollar value of all goods and services that
an economy produces in a particular period of time.
6. Nominal GDP measures the total value of goods and services, adjusted
for inflation.
7. GDP in constant dollars uses prices from a base year, so that prices do
not vary over time.
MULTIPLE CHOICE
3. In an economy with two goods, beer and pizza, if pizza costs $10 per
pie and beer costs $5 per six pack and if 100 six packs of beer and 200 pizzas are
produced in a year, then nominal GDP that year would be:
a. $2,000. c. $1,500.
b. $2,500. d. none of the above.
4. In an economy with two goods, burgers and pizza, if pizza costs $15
per pie and burgers costs $5 per burger and if 1000 burger and 200 pizzas are
produced in a year, then nominal GDP that year would be:
a. $24,000. c. $16,000.
b. $8,000. d. none of the above.
5. Real GDP is GDP:
a. in constant dollars. c. that considers income distribution.
b. in current dollars. d. that includes the value of leisure.
8. If real GDP is 120 and nominal GDP is 180, then the implicit price
level is:
a. .56. c. 60.
b. 1.5. d. 21600.
9. If real GDP is 200 and nominal GDP is 160, then the implicit price
level is:
a. 0.8 c. 40.
b. 1.25 d. 32000.
Table 2.1
18. Based on the data in Table 2.1, net domestic private investment is:
a. $1.7 trillion. c. $11.0 trillion.
b. $2.7 trillion. d. none of the above.
Table 2.2
20. Based on the data in Table 2.2, personal consumption expenditure is:
a. $3.7 trillion. c. $8.9 trillion.
b. $9.7 trillion. d. none of the above.
21. Based on the data in Table 2.2, gross private investment is:
a. $1.0 trillion. c. $5.1 trillion.
b. $4.3 trillion. d. none of the above.
22. Based on the data in Table 2.2, government purchases are:
a. $0.9 trillion. c. $0.6 trillion.
b. $2.4 trillion. d. none of the above.
23. Based on the data in Table 2.2, net exports of goods and services are:
a. $0.7 trillion. c. -$0.7 trillion.
b. $3.3 trillion. d. none of the above.
24. Based on the data in Table 2.2, gross domestic product is:
a. $17.7 trillion. c. $19.7 trillion.
b. $15.7 trillion. d. none of the above.
25. Based on the data in Table 2.2, net domestic product is:
a. $15.7 trillion. c. $19.7 trillion.
b. $17.7 trillion. d. none of the above.
26. Economists sometimes use a closed economy model despite the fact of
trade with the rest of the world because:
a. the world as a whole is a closed economy. c. it simplifies the analysis.
b. at least for large countries like the US exports and imports have been small
compared to GDP. d. all of the above.
Table 2.3
Type of Income Trillions of $
34. Base on the data in Table 2.4, gross national product (GNP) is:
a. $11.4 trillion. c. $12.5 trillion.
b. $12.6. trillion. d. none of the above.
35. Based on the data in Table 2.4, net national product is:
a. $11.0 trillion. c. $12.6 trillion.
b. $11.4 trillion. d. none of the above.
38. Based on the data in Table 2.4, disposable personal income is:
a. $10 trillion. c. $9.2 trillion.
b. $7.4 trillion. d. none of the above.
39. Gross national product (GNP) is gross domestic product (GDP):
a. less income receipts from the rest of the world less income payments to the
rest of the world. c. plus income receipts from the rest of the world less
income payments to the rest of the world.
b. less income receipts from the rest of the world plus income payments to the
rest of the world. d. less income receipts from the rest of the world less
income payments to the rest of the world.
46. Subtracted from personal income to get disposable personal income is:
a. personal taxes. c. personal income receipts on assets.
b. contributions for social insurance. d. all of the above.
48. The consumer price index is biased because it can not account for:
a. quality changes in goods. c. people substituting to cheaper goods.
b. new goods. d. all of the above.
52. Which of the following would NOT be included in this years GDP?
a. the sale of a new 4-door sedan car to a consumer. c. the sale of an
antique automobile to a antique-car collector.
b. the sale of a new computer to a student. d. the sale of a new SUV to
a consumer.
54. In the calculation of real GDP, a base year is used for measuring
a. rental income. c. production quantities.
b. wages. d. prices.
57. When the quality of a product changes over time, real GDP
a. cannot be adjusted for this problem. c. can be adjusted by using a chain-
weighted measure of GDP.
b. can be adjusted by choosing a new base year each decade. d. can be
adjusted by subtracting depreciation from nominal GDP.
58. If nominal GDP is 200 and the implicit price level is 1.25, then real
GDP
a. equals 250. c. equals 160.
b. equals 201.25 d. cannot be calculated.
59. If nominal GDP is 300 and the implicit price level is 0.75, then real
GDP
a. equals 400. c. equals 225.
b. equals 300. d. cannot be calculated.
60. If real GDP equals 400 and the implicit price level is 0.75, then
nominal GDP
a. equals 400. c. equals 225.
b. equals 300. d. cannot be calculated.
61. If real GDP equals 400 and the implicit price level is 1.25, then
nominal GDP
a. equals 320. c. equals 500.
b. equals 400. d. cannot be calculated.
65. The sum of value added from all sectors in an economy is equal to
a. national income. c. net national product.
b. GDP. d. (a) and (b).
66. A pottery shop buys clay and other materials for $20. Workers use the
materials to make 5 bowls that are sold for $250 total. The value added by the pottery
shop equals
a. $0. c. $30.
b. $20. d. $230.
SHORT ANSWER
Chapter 3
TRUE/FALSE
6. Data show that, from 1960 to 2000, the U.S. and other OECD
countries grew at moderate rates.
10. The Solow growth model indicates that the growth rate of real GDP
per worker depends partly on the saving rate.
MULTIPLE CHOICE
25. If a country has a population of 300 million and a labor force of 200
million, then its labor force participation rate is:
a. 0.67 c. 100 million.
b. 1.5 d. 200 million.
33. If there are 120 machines in an economy and the depreciation rate is
5% per year, then:
a. depreciation is 5 machines a year. c. depreciation is 115 machines per
year.
b. depreciation is 6 machines a year. d. depreciation is 114 machines per
year.
34. If there are 120 machines in an economy and the depreciation rate is
10% per year, then next year there are:
a. 10 of the original machines left. c. 108 of the original machines left.
b. 12 of the original machines left. d. 110 of the original machines left.
Figure 3.1
36. In Figure 3.1 the average product of capital is:
a. rising. c. falling.
b. constant. d. unknown.
40. In the Solow growth model the economy reaches the optimal k*:
a. immediately. c. randomly.
b. over a period of time. d. cyclically.
44. The Solow growth model shows that the growth rate of real GDP per
worker depends on:
a. the saving rate, s c. the rate of inflation.
b. government spending, G. d. all of the above.
45. The Solow growth model shows that the growth rate of real GDP per
worker depends on:
a. the rate of growth of the money supply. c. rate of growth of
government debt.
b. the growth rate of the labor force, n. d. all of the above.
46. The Solow growth model shows that the growth rate of real GDP per
worker depends on:
a. the rate of growth of the money supply. c. the depreciation rate, .
b. level of output in the economy. d. all of the above.
47. In the Solow growth model the optimal capital to labor ratio, K/L, is
where:
a. s + n = s(k/y). c. n + s = s(y/k).
b. s + n = s(y/k). d. s + s = n(y/k).
48. In the Solow growth model the steady state is when the economy has:
a. full employment. c. zero inflation.
b. the optimal capital labor ratio, k*. d. all of the above.
49. During the transition to the steady state in the Solow growth model:
a. the output per worker rises. c. the rate of growth of capital rises.
b. labor force participation rises. d. all of the above.
50. During the transition to the steady state in the Solow growth model:
a. the output per worker falls. c. the rate of growth of capital falls.
b. labor force participation rises. d. all of the above.
51. During the transition to the steady state in the Solow growth model:
a. the output per worker rises. c. the rate of growth of capital falls.
b. the capital to labor ratio rises. d. all of the above.
53. The Solow residual is that part of output growth attributed to:
a. the growth rate of the labor force. c. the growth rate of the capital
stock.
b. the growth rate of output. d. the grow rate of technology.
57. Data from recent decades show that economic growth led to
a. a worldwide increase in poverty. c. an increase in poverty in OECD
countries only.
b. no signficant change in poverty. d. a worldwide decline in poverty.
58. Data from recent decades show that economic growth led to
a. a worldwide increase in inequality. c. an decrease in inequality in China
only.
b. no signficant change in inequality. d. a worldwide decrease in
inequality.
59. The world distribution of real GDP per person in 2000 shows that
a. OECD countries dominate the bottom of the distribution. c. sub-
Saharan African countries dominate the bottom of the distribution.
b. OECD countries dominate the top of the distribution. d. both (b)
and (c).
60. The world distribution of real GDP per person in 2000 shows that
a. OECD countries dominate the bottom of the distribution. c. sub-
Saharan African countries dominate the top of the distribution.
b. OECD countries dominate the top of the distribution. d. both (b)
and (c).
64. In the Solow model, the growth rate of the capital stock is a function of
a. the saving rate and the depreciation rate. c. the labor force
participation rate and the technology growth rate.
b. the saving rate and the labor force participation rate. d. the depreciation
rate and the labor force participation rate.
65. In the Solow model, the growth rate of the labor is a function of
a. the saving rate and the growth rate of the population. c. the labor
force participation rate and the health technology growth rate.
b. the saving rate and the labor force participation rate. d. the growth rate of
the population.
68. In the steady state for the Solow growth model, the saving per worker
a. is greater than the capital provided for each new worker. c. is equal to
the depreciation rate per worker.
b. is equal to the capital provided for each new worker. d. is greater
than the depreciation rate per worker.
SHORT ANSWER
3. What is the growth account formula and what does it tell us?