Name:___________ HMW 5

K.Koleyni

1) What are the four major categories of expenditure?

A) Final goods, intermediate goods, production, and income.
B) Wages, interest, rent, and profit.
C) Consumption, investment, government purchases, and net exports.
D) Labor, capital, natural resources, and entrepreneurship

2) What are the four categories of income?

A) Consumption, Investment, Government Purchases, and Net Exports.
B) Wages, Salaries, Interest, and Dividends.
C) Labor, Capital, Natural Resources, and Entrepreneurship.
D) Wages, Interest, Rent, and Profit.

3) Indicate whether each of the following is a final good, an intermediate good, or neither.
Coffee beans purchased by a coffee shop
A new pick-up truck purchased by a consumer
A new home purchased by a family

4) Which of the following equations sums up the components of Gross Domestic Product (GDP)?
A) Y=C+I+G−NX
B) Y=C−I−G−NX
C) Y=C+I−G+NX
D) Y = C+I+G+NX

5) Why is GDP an imperfect measurement of total production in the economy?

A) The BEA does not include the value of new houses in GDP.
B) GDP does not include household production or production from the underground economy.
C) GDP measures total income paid to the factors of production, not production.
D) The official measure of GDP does not include intermediate goods and services.

6) Real GDP per capita is often used as a measure of general well-being. While increases in real GDP
often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of
well-being?
A) The value of leisure is not included.
B) GDP does not include crime rates or income distribution.
C) The costs of pollution are not included.
D) All of the above.

7) Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present,
what would be true of the relationship between nominal GDP and real GDP ?
A) RGDP > NGDP because prices are falling.
B) RGDP = NGDP because prices are stable.
C) RGDP < NGDP because prices are rising.
D) The relationship is uncertain without more information on prices.

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Name:___________ HMW 5
K.Koleyni

8) Disposable personal income is

A) national income minus personal taxes.
B) national income minus depreciation.
C) personal income minus personal taxes.
D) personal income minus indirect business taxes.

9) Which of the following would be included in the gross national product (GNP) of the United States?
A) Production from a Canadian firm that operates in Montana.
B) Production from a U.S. firm that operates in Mexico.
C) Production from an Hungarian citizen who works in Denver, CO.
D) All of the above are included in the GNP of the U.S.

10) National income is

A) GDP minus sales taxes.
B) NNP minus income taxes.
C) GDP minus depreciation.
D) GNP plus depreciation.

11) Personal income is

A) national income minus retained corporate earnings plus government transfer payments and interest on
government bonds.
B) equal to the value of all final goods and services produced within a country's borders during one year.
C) national income minus income taxes.
D) national income plus government transfer payments.

12) Which of the following goods is directly counted in GDP?

A) the lettuce that Subway purchases for its sandwiches
B) the bread that Subway purchases for its sandwiches
C) a 12-inch Subway sandwich purchased by a student
D) the plastic bags that Subway purchases to wrap its sandwiches

Table 1
Product Quantity Price
Sweatshirts 50 $35.00
Dental examinations 40 75.00
Coffee drinks 1,000 4.00
Coffee beans 2,000 0.50

13) Refer to Table 1. Suppose that a simple economy produces only four goods and services:
sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are
used in the production of the coffee drinks. Using the information in the above table, nominal GDP for
this simple economy equals
A) 3,090 units.
B) $7,250.
C) $8,750.
D) $9,750.

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Name:___________ HMW 5
K.Koleyni

14) The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that
A) the value of output in 2015 was around $17.3 trillion.
B) total income in 2015 was around $17.3 trillion.
C) total spending in 2015 was around $17.3 trillion.
D) all of the above are true.

15) Which of the following is not an example of a transfer payment?

A) unemployment insurance payments
B) health insurance payments to an army private
C) social security payments to retirees
D) social security payments to disabled persons

16) The purchase of a new house is included in

A) consumption expenditures.
B) investment expenditures.
C) government purchases.
D) net exports.

17) The purchase by a foreign government of an airplane produced in the United States is included in
U.S.
A) consumption expenditures.
B) investment expenditures.
C) government purchases.
D) net exports.

18) What is the largest component of spending in the United States?

A) consumption spending
B) investment spending
C) government spending
D) net investment spending

Table 4

Consumption expenditures $800

Investment expenditures 300
Government purchases 300
Government transfer payments 400
Exports 300
Imports 100

19) Refer to Table 4. Consider the data above (in billions of dollars) for an economy: Gross domestic
product (in billions of dollars) for this economy equals
A) $2,200.
B) $2,100.
C) $1,600.
D) $1,400.

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Name:___________ HMW 5
K.Koleyni

Table 5

Stage of Production Seller Buyer Price

1 Steel mill Auto manufacturer $10,000
2 Auto manufacturer Auto dealer 18,000
3 Auto dealer Consumer 25,000

Consider the table above showing three stages of production of an automobile.

20) Refer to Table 5. The value added by the automobile dealer equals
A) $7,000.
B) $15,000.
C) $18,000.
D) $25,000.

21) Legalizing all forms of illegal activities

A) reduces GDP and reduces the size of the underground economy.
B) reduces GDP and increases the size of the underground economy.
C) increases GDP and reduces the size of the underground economy.
D) increases GDP and increases the size of the underground economy.

22) The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact of the
decline in working hours
A) increases U.S. GDP and increases the well-being of a typical working person in the U.S.
B) increases U.S. GDP and decreases the well-being of a typical working person in the U.S.
C) decreases U.S. GDP and increases the well-being of a typical working person in the U.S.
D) decreases U.S. GDP and decreases the well-being of a typical working person in the U.S.

23) If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be
A) equal to 100.
B) greater than 100.
C) less than 100.
D) less than 0.

Table 18
2011 2016
Product Quantity Price Quantity Price
Camera 100 $10 120 $12
Legal services 50 15 45 20
Books 200 40 210 45
A very simple economy produces three goods: cameras, legal services, and books. The quantities
produced and their corresponding prices for 2011 and 2016 are shown in the table above.

24) Refer to Table 18. What is real GDP in 2016, using 2011 as the base year?
A) $28,885
B) $11,790
C) $11,200
D) $10,275

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Name:___________ HMW 5
K.Koleyni

25) Refer to Table 18. What is real GDP in 2016, using 2016 as the base year?
A) $28,885
B) $11,790
C) $11,200
D) $10,275

26) Refer to Table 18. What is nominal GDP in 2016 when 2011 is the base year?
A) $28,885
B) $11,790
C) $11,200
D) $10,275

27) Refer to Table 18. What is the GDP deflator in 2016 if 2016 is the base year?
A) 120
B) 118
C) 100
D) 87

28) Refer to Table 18. What is the GDP deflator in 2011 if 2016 is the base year?
A) 187
B) 87
C) 8.7
D) 0.87

29) Depreciation is
A) the value of worn-out equipment, machinery, and buildings.
B) the value of the decrease in business inventory stocks.
C) the value of the addition to the capital stock.
D) the decline in the value of the stock market, net of dividends.

30) In the circular flow of expenditure and income, why must the total value of production in an
economy equal the total value of income?
A) Domestic expenditures on imports generally equal foreign expenditures on U.S. exports.
B) Taxes on the production of goods and services are determined according to individual income.
C) People tend to spend all of their income on goods and services.
D) Every penny spent on a good or service must end up as someone's income.

31) Gross Domestic Product (GDP) is

A) the value of all expenditures made by households and firms in a country during a period of time.
B) the market value of all final goods and services produced in a country during a period of time.
C) the amount of income generated from wages, rents, and profits in a country during a period of time.
D) the quantity of all final goods and services produced in a country during a period of time.

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Name:___________ HMW 5
K.Koleyni

Figure 1

32) Refer to Figure 1. In the circular flow diagram, which two arrows in the diagram depict taxes?
A) E and D
B) E and H
C) G and D
D) E and G
E) D and H
F) G and H

33) Refer to Figure 1. In the circular flow diagram, the flow of funds between the households and the
rest of the world (Arrow A) is:
A) expenditures on exports
B) expenditures on imports
C) expenditures on consumption
D) investment expenditures
E) lending
F) borrowing