Exercises of Chapter 2

Multiple-choice Questions:

1. Which of the following is NOT included in GDP?

C. The value of automobile services enjoyed by car owners

2. In which case is total expenditure in an economy NOT equal to total

income?

D. None of the answers is correct—they are always equal.

3. All other things equal, GDP will rise if:

C. Durable goods consumption rises.

4. Suppose that a car was produced but not sold in 2013. The car could
still be sold in 2014. According to the book, the car would be counted as
part of:

A. 2013 GDP as investment.

5. Which of the following statements describes the difference between

real and nominal GDP?

B. Real GDP is measured using constant base-year prices; nominal

GDP is measured using current prices

6. If production remains the same and all prices double, then real GDP:

C. is constant and nominal GDP doubles.

7. Real GDP equals:

C. Nominal GDP multiplied by the GDP deflator

8. If production remains the same and all prices double relative to
the base year, then the GDP deflator is:

D. 2.

9. Which of the following is NOT considered investment?

C. An individual purchases several pieces of antique

furniture.

10. If 1995 is the base year, what is the GDP deflator for 2000?

C.1

Problems

1.

a.GDP= $1,000,000 (expenditures for a service, part of

consumption)

b.NNP= $1,000,000-$125,000 (depreciation)=$875,000

c.National income= $875,000 (no statistical discrepancies)

d.Compensation of employees= $600,000

e.Proprietors’ income= $0 (considered a corporation)

f.Corporate profits= ($50,000 + $150,000 + $75,000) = $275,000

g.Personal income=$875,000 - $275,000 (corporate profits) +

$150,000 (dividends) = $750,000

h.Disposable personal income= $750,000 - $60,000 - $140,000 =

$550,000 (does not include corporate income taxes)
2.

A. Labor force = 25 + 20 +5 + 10+10 = 70

Adult population = 100 - children = 100 - 10 = 90

Labor force participation rate =Labor force / Adult population

LFPR = (70 / 90)*100 = 77.78%

B. Unemployed = 10

Unemployment rate = (10/70)×100 = 14.29%