Chapter 22: Measuring a Nation’s Income

Test B

1. 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.

2. GDP can measures both an economy’s total income and total expenditure
because they are
a. always equal because rules in accounting always make things equal.
b. equal only when all goods and services produced are sold.
c. equal because only households purchase goods and services.
d. always equal since every transaction has both a buyer and a seller.

3. Which of the following represents GDP?

a. C + I + G
b. G + I + NX
c. I + C + NX
d. C + I + G + NX

4. Aaron and Adam, who are both full-time students, have each been doing work
on their own cars. Then 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,
GDP
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.

5. The largest component of GDP is

a. net exports.
b. consumption.
c. government purchases.
d. investment.
6. If the value of intermediate goods were used to calculate GDP instead of final
goods, then GDP 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 doesn’t matter whether intermediate goods or final goods
are used in the calculations.

7. Jim buys a new Mustang in August 1999 and then sells it to John in June 2001.
As a result,
a. the value of the car will be included in 2001 GDP only, since that was the
year of the last sale.
b. 1999 GDP will include the value of the car, and 2001 GDP will include the
value of the car minus depreciation.
c. 1999 GDP will include the value of the car, but 2001 GDP will not.
d. both 1999 GDP and 2001 GDP will include the value of the car since it was
sold in both years.

8. Which two of the following are considered measures of income for an

economy?
a. gross national product and net national product
b. net national profits and personal income
c. gross national product and net national investment
d. disposable personal income and personal profits

9. If the government reports that “GDP increased at an annual rate of 4.0 percent
for the fourth quarter of 2000,” then GDP increased by
a. 1.0 percent during 2000.
b. 16.0 percent during 2000.
c. 4.0 percent during the fourth quarter of 2000.
d. 1.0 percent during the fourth quarter of 2000.

10. If you buy a carton of chocolate chip cookie dough ice cream in your favorite
grocery store
a. both GDP and consumption spending will be higher.
b. GDP will be higher, but consumption spending will be unchanged.
c. GDP will be unchanged, but consumption spending will be higher.
d. since your spending on the ice cream became the store’s income, GDP
would not change.
11. Net exports will be positive when
a. imports are larger than exports.
b. exports are larger than imports.
c. imports are equal to exports.
d. GDP increases.

12. Transfer payments are

a. paychecks which are automatically deposited in bank accounts.
b. on-line bill payment services offered by many large banks.
c. moving expenses 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.

13. If Hallmark builds a plant in Mexico, the production from that plant would be
a. included in U.S. GNP but not GDP.
b. included in U.S. GDP but not GNP.
c. included in both U.S. GDP and GNP.
d. not included in either U.S. GDP or GNP but only in Mexico’s production.

14. If a construction company in Japan purchases a U.S. built bulldozer from

Caterpillar, U.S. GDP
a. is the same but U.S. GNP increases.
b. increases since exports are included in GDP.
c. is unaffected since exports are not included in GDP.
d. decreases since the bulldozer could have been purchased by a U.S.
company.

15. Real GDP

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 economy’s performance.
d. is a measure of the value of goods only, but not services.

2000 (Base Year) 2001 (Current Year)

PRICE QUANTIT PRICE QUANTIT
Y Y
CORN $2 30 CORN $4 50
RICE $2 20 RICE $3 40
16. Using the information in the table, what is the nominal GDP and the real GDP
for 2001?
a. The nominal GDP is $100 and real GDP is $100.
b. The nominal GDP is $180 and real GDP is $100.
c. The nominal GDP is $240 and real GDP is $180.
d. The nominal GDP is $320 and real GDP is $180.

17. Using the information in the table, the GDP deflator would be
a. 100.
b. 152.
c. 178.
d. 194.

18. GDP is a good but not perfect measure of economic well-being because it
leaves out each of the following EXCEPT
a. leisure.
b. volunteer work.
c. medical services.
d. the quality of the environment.

19. If nominal GDP is $10 trillion and the GDP deflator is 125, real GDP is
a. $6 trillion.
b. $8 trillion.
c. $10 trillion.
d. $12.5 trillion.

20. If we want to know the amount of expenditures for an average individual in a

country, we should look at
a. real GDP.
b. nominal GDP.
c. GDP per person.
d. current GDP.

21. International GDP data show that

a. a nation’s GDP is closely associated with its citizens’ standard of living.
b. there is no relationship between GDP and the economic well-being of
citizens.
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 GDP among nations.