*Ch19 Macro Perspective*
*Multiple Choice Questions*
*1. *GDP is:
A. the sum of all currency and coins in circulation.
B. the value of all final goods and services produced by a government.
C. the value of all final good and services produced anywhere in the world by a nation’s firms.
D. the value of all final goods and services produced domestically.
Answer: D Reference:
Explanation:
Type: Multiple Choice
*2. *Final goods or services used to compute GDP refer to:
A. the sum of all wages paid to laborers.
B. the factors of production used to produce output.
C. goods and services purchased by the ultimate users.
D. the value of outstanding shares of stock of manufacturing firms.
Answer: C Reference:
Explanation:
Type: Multiple Choice
*3. *Consumption in the United States is about ____________ of GDP, and it moves relatively little over time.
A. 10%
B. 33%
C. 68%
D. 90%
Answer: C Reference:
Explanation:
Type: Multiple Choice
*4. *The demand measure of GDP accounting adds together:
A. wages and salaries, rent, interest, and profit.
B. consumption, investment, government purchases, and trade balance.
C. consumption, government purchases, wages and salaries, and trade balance.
D. consumption, interest, government purchases, and trade balance.
Answer: B Reference:
Explanation:
Type: Multiple Choice
*5. *Consumption is the purchase of goods and services by:
A. households.
B. government.
C. business firms.
D. foreign buyers.
Answer: A Reference:
Explanation:
Type: Multiple Choice
*6. *Which of the following are most likely classified by economists as consumer durable goods?
A. food, clothing
B. drugs, toys, magazines, books
C. automobiles, furniture
D. stocks, bonds
Answer: C Reference:
Explanation:
Type: Multiple Choice
*7. *Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion, and government spending equals $260 billion, then:
A. exports exceed imports by $50 billion.
B. imports exceed exports by $50 billion.
C. imports exceed exports by $150 billion.
D. exports exceed imports by $150 billion.
Answer: B Reference:
Explanation:
Type: Multiple Choice
*8. *The value of what businesses provide to other businesses is captured in the final products at the end of the __________ chain.
A. service
B. value
C. production
D. supply
Answer: C Reference:
Explanation:
Type: Multiple Choice
*9. *___________ is a small category that refers to the goods produced by one business that have yet to be sold to consumers, and are either still sitting in warehouses and on store shelves.
A. Inventories
B. Services
C. Structures
D. Durable goods
Answer: A Reference:
Explanation:
Type: Multiple Choice
*10. *In order to avoid double counting, statisticians just count the __________________.
A. final inventories
B. final goods and services
C. intermediate goods and services
D. durable goods and nondurable goods
Answer: B Reference:
Explanation:
Type: Multiple Choice
*11. *Which of the following is included in the calculated Gross Domestic Product?
A. Farmer Freddie sells his second tractor to his son.
B. Suzanne buys a love seat and chair for $85 at the yard sale on the corner.
C. A local ice cream store sells $17,000 worth of cones and sundaes on July 1.
D. Mr. Farkle buys a used lawn mower from his neighbor, Mr. Sparkle.
Answer: C Reference:
Explanation:
Type: Multiple Choice
*12. *Which of the following is not counted as a part of GDP?
A. the purchase of 100 shares of AT&T stock by your grandfather.
B. the purchase of a snow plough by the city of Minneapolis.
C. the unsold additions to inventory at an appliances store
D. the purchase of a loaf of bread by a consumer
Answer: A Reference:
Explanation:
Type: Multiple Choice
*13. *Which of the following is not included in GDP?
A. the payments for a chiropractor’s services
B. cash income paid to a day laborer that is not reported to the tax authorities
C. the replacement of brake pads on your six-year-old vehicle
D. the fees for legal services rendered by your lawyer
Answer: B Reference:
Explanation:
Type: Multiple Choice
*14. *_________ are now the largest single component of the supply side of GDP, representing over half of GDP.
A. Durable goods
B. Services
C. Nondurable goods
D. Structures
Answer: B Reference:
Explanation:
Type: Multiple Choice
*15. *To compare the GDP of two different countries with different currencies, it is necessary to use _________________________.
A. an exchange rate
B. foreign currency
C. currency rates
D. per capita GDP
Answer: A Reference:
Explanation:
Type: Multiple Choice
*16. *___________ is about two-thirds of the demand side of GDP, but it moves relatively little over time.
A. Government
B. Consumption
C. Investment
D. Services
Answer: B Reference:
Explanation:
Type: Multiple Choice
*17. *Durable goods and non-durable goods comprise approximately ________ of the supply side of the GDP.
A. 1%
B. 20%
C. 45%
D. 80%
Answer: C Reference:
Explanation:
Type: Multiple Choice
*18. *_________ is calculated by taking _________ and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year.
A. GNP; NNP
B. NNP; GNP
C. GDP; NNP
D. NNP; GDP
Answer: B Reference:
Explanation:
Type: Multiple Choice
*19. *Which of the following is included in GDP calculations?
A. sales revenue received from a yard sale
B. cash income received by a self-employed landscaper that is not reported to the IRS
C. a crisp $50 bill received on your birthday
D. the university tuition paid to enroll in a course
Answer: D Reference:
Explanation:
Type: Multiple Choice
*20. *Which of the following is included in GDP?
A. revenue from the sale of a three-year old car
B. the fees charged for a stock broker’s services
C. the receipts from a sale of land
D. the value of lawn care service provided by a sixteen-year-old as part of his weekly chores
Answer: B Reference:
Explanation:
Type: Multiple Choice
*21. *GDP does not directly include:
A. the value of goods produced domestically and sold abroad.
B. the value of intermediate goods sold during a period.
C. the value of services rendered during a period.
D. the value of final goods and services produced, but not sold, during a period.
Answer: B Reference:
Explanation:
Type: Multiple Choice
*22. *GDP in the United States in 2012 was about __________.
A. $162 billion
B. $1.62 trillion
C. $16.2 trillion
D. $162 trillion
Answer: C Reference:
Explanation:
Type: Multiple Choice
*23. *Investment (I) includes:
A. the amount spent on new factories and machinery.
B. the amount spent on stocks and bonds.
C. the amount spent on consumer goods that last more than one year.
D. the amount spent on purchases of art.
Answer: A Reference:
Explanation:
Type: Multiple Choice
*24. *Middle-income countries, which include much of Latin America, Eastern Europe, and some countries in East Asia, have per capita GDP in the range of ___________.
A. $60 to $120
B. $600 to $1200
C. $6,000 to $12,000
D. $60,000 to $120,000
Answer: C Reference:
Explanation:
Type: Multiple Choice
*25. *A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are:
A. trough, expansion, recession, peak
B. contraction, recession, expansion, boom
C. expansion, trough, recession, peak
D. expansion, peak, recession, trough
Answer: D Reference:
Explanation:
Type: Multiple Choice
*26. *Which of the following is true?
A. A depression is a recession that is mild and relatively brief.
B. The expansions and contractions of real world business cycles last varying lengths of time and often differ in magnitude.
C. The timing of business fluctuations is regular and therefore easily predictable.
D. During the contractionary phase of the business cycle, the rate of unemployment is generally quite low.
Answer: B Reference:
Explanation:
Type: Multiple Choice
*27. *For most high-income countries of the world, GDP _________________ over time.
A. has proven to be stable
B. has risen gradually
C. has declined slightly
D. has sharply risen
Answer: B Reference:
Explanation:
Type: Multiple Choice
*28. *If imports exceed exports, as in recent years, then __________ exists.
A. a trade surplus
B. a trade deficit
C. a trade imbalance
D. trade disequilibrium
Answer: B Reference:
Explanation:
Type: Multiple Choice
*29. *On the demand side of GDP, consumption by _____________ is the largest component of GDP, accounting for about two-thirds of the GDP in any year.
A. services
B. businesses
C. households
D. government
Answer: C Reference:
Explanation:
Type: Multiple Choice
*30. *In 1980 Denmark had a GDP of $70 billion (measured in U.S. dollars) and a population of 5.1 million. In 2000, Denmark had a GDP of $160 billion (measured in U.S. dollars) s and a population of 5.3 million. By what percentage did Denmark’s GDP per capita rise between 1980 and 2000?
A. 45.4%
B. 219%
C. 128%
D. 120%
Answer: D Reference:
Explanation:
Type: Multiple Choice
*31. *India has a GDP of 23,000 billion Indian rupees, and a population of 1.1 billion. The exchange rate is 50 rupees per U.S. dollar. Calculate the GDP per capita of India as measured in U.S. dollars.
A. $20.90
B. $20,909
C. $418
D. $4.18
Answer: C Reference:
Explanation:
Type: Multiple Choice
*32. *Ethiopia has a GDP of $8 billion (measured in U.S. dollars) and a population of 55 million. Costa Rica has a GDP of $9 billion (measured in U.S. dollars) and a population of 4 million. Calculate per capita GDP for each country.
A. Ethiopia = $14.50 Costa Rica = $2250.00
B. Ethiopia = $14.50 Costa Rica = $225.00
C. Ethiopia = $145.00 Costa Rica = $2250.00
D. Ethiopia = $1450.00 Costa Rica = $22,500.00
Answer: C Reference:
Explanation:
Type: Multiple Choice
*33. *In 1990, the GDP of Canada was $680 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 85 U.S. cents. In 2000, the GDP of Canada was $1000 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 69 U.S. cents. By what percentage did the GDP of Canada increase from 1990 to 2000 in Canadian dollars?
A. 19.4%
B. 47%
C. 68%
D. 147%
Answer: B Reference:
Explanation:
Type: Multiple Choice
*34. *The Czech Republic has a GDP of 2,000 billion koruny. The exchange rate is 20 koruny per U.S. dollar. The Czech population is 20 million. Calculate the per capita GDP of the Czech Republic in U.S. dollars.
A. $5
B. $100,000
C. $500
D. $5000
Answer: D Reference:
Explanation:
Type: Multiple Choice
*35. *The gap between exports and imports in a nation’s economy is called the ___________.
A. trade surplus
B. trade balance
C. trade deficit
D. trade inventory
Answer: B Reference:
Explanation:
Type: Multiple Choice
*36. *_______________, which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country.
A. Trade balance
B. Inflation
C. Education
D. Economic growth
Answer: D Reference:
Explanation:
Type: Multiple Choice
*37. *Once every __________, the Census Bureau does a comprehensive survey of housing and residential finance.
A. month
B. 5 years
C. 10 years
D. 20 years
Answer: C Reference:
Explanation:
Type: Multiple Choice
*38. *On the supply side of the GDP, Structures account for around __________ of U.S. GDP.
A. 7%
B. 17%
C. 37%
D. 57%
Answer: A Reference:
Explanation:
Type: Multiple Choice
*39. *The change in inventories, a component of aggregate supply, comprises roughly __________ of GDP.
A. 20%
B. 10%
C. 1%
D. 0.5%
Answer: D Reference:
Explanation:
Type: Multiple Choice
*40. *Which of the following statements is true?
A. GDP includes spending on recreation and travel, but it does not cover leisure time.
B. GDP does not include production that is exchanged in the market, but it does cover production that is not exchanged in the market.
C. GDP does not include newly produced goods and services, but counts the buying and selling of previously existing assets
D. GDP includes production that is not exchanged in the market
Answer: A Reference:
Explanation:
Type: Multiple Choice
*41.* The difference between nominal GDP and real GDP is:
A. nominal GDP measures actual productivity
B. nominal GDP adjusts for inflation
C. real GDP adjusts for inflation
D. real GDP excludes imports and exports
Answer: C Reference:
Explanation:
Type: Multiple Choice
*42.* The nominal value of any economic statistic refers to the number that is actually announced at that time, while the ________________ refers to the statistic after it has been adjusted for inflation.
A. empirical value
B. adjusted value
C. real value
D. net value
Answer: C Reference:
Explanation:
Type: Multiple Choice
*Essay Questions*
*1. *What is the importance in macroeconomics of measuring per capita GDP?
Explanation: The level of per capita GDP clearly captures some element of what is meant by the phrase “standard of living.” Most of the migration in the world, for example, involves people who are moving from countries with relatively low per capita GDP to countries with relatively high per capita GDP. If the population growth rates exceed the growth rate in real GDP, real GDP per capita will actually decline even though real GDP is increasing.
Type: Essay
*2. *One danger for the statisticians who calculate GDP is to avoid the mistake of double counting. Define “double counting” and describe why it may be dangerous.
Explanation: Double counting is output counted two or more times as it travels through the stages of production. The danger is that this could overstate the size of the economy considerably
Type: Essay
*3. *How do statisticians and economists measure GDP? Specifically, what is the formula used? Define the component parts of the equation.
Explanation: Based on these five components of demand, GDP can be measured as:
GDP = Consumption + Investment + Government + Trade balance
GDP = C + I + G + (X–M).
Consumption (C) by households is the largest component of GDP, accounting for about two-thirds of the GDP in any year. However, consumption is a gentle elephant: when viewed over time, it doesn’t jump around too much.
Investment (I) by businesses refers to real purchases of physical plant and equipment by businesses. Investment demand is far smaller than consumption demand, typically accounting for only about 15–20% of GDP. However, it moves up and down more noticeably than consumption. Investment is a cat in a bag: it jumps around unexpectedly.
Government (G) demand in the United States appears relatively small, at about 20% of GDP. This proportion may seem too low. Indeed, government in the United States (including the federal, state and local levels) collects about one-third of GDP in taxes. However, much of that money is passed directly to citizens, through programs like Social Security, welfare payments to the poor, or interest payments on past government borrowing. In these cases, the money that passes through government hands is counted as part of consumption. The only part of government spending counted in demand is—returning to the basic definition of GDP—government purchases of goods or services produced in the economy. Examples would include when the government buys a new fighter jet for the Air Force or when it pays workers who deliver government services.
When thinking about the demand for domestically produced goods in a global economy, it is important to count demand for exports (X)—that is, domestically made goods that are sold abroad. However, if one is going to add in the extra demand generated by foreign buyers, one must also subtract out imports (M)—that is, goods produced in other countries that are purchased in this country. The gap between exports and imports is called the trade balance.
Type: Essay
*4. *List and describe the components of Gross Domestic Product on the supply side. Be sure to account for the relative size of each component within the total GDP.
Explanation: Services are the largest single component of aggregate supply, representing over half of GDP. Nondurable goods used to be larger than durable goods, but in recent years, both categories are about 20% of GDP. Structures hover around 10% of GDP. The change in inventories, the final component of aggregate supply, is not shown here; it is typically less than 1% of GDP.
Type: Essay
*5. *What is the formula for measurement on the demand side of GDP? Be sure to include a brief definition of each of the formula components and the proper nomenclature.
Explanation: Based on these five components of demand, GDP can be measured as:
GDP = Consumption + Investment + Government + Trade balance
GDP = C + I + G + (X–M).
Type: Essay
*6. *When comparing the GDP of different countries, two issues immediately arise. What are these issues and how does one account for these while comparing the GDP for different countries?
Explanation: First, the GDP of a country is measured in its own currency: the United States uses the U.S. dollar; Canada, the Canadian dollar; most countries of western Europe, the euro; Japan, the yen; Mexico, the peso; and so on. Thus, comparing GDP between two countries requires converting from one currency to another. A second problem is that countries have very different numbers of people. For instance, the United States has a much larger economy than Mexico or Canada, but it also has roughly three times as many people as Mexico and nine times as many people as Canada. Thus, comparing GDP across countries requires a way of adjusting for different currencies and for different population levels.
Type: Essay
*7. *List and describe the components of Gross Domestic Product on the demand side. Be sure to account for the relative size of each component within the total GDP.
Explanation: (a) Consumption is about two-thirds of GDP, but it moves relatively little over time. Investment hovers around 15% of GDP, but it increases and declines more than consumption. Government spending on goods and services is around 20% of GDP.
(b) Exports are added to total demand for goods and services, while imports are subtracted from total demand. Thus, if exports are equal to imports, international trade as a whole has no impact on the size of GDP. If exports exceed imports, as in most of the 1960s and 1970s in the U.S. economy, a trade surplus exists. If imports exceed exports, as in recent years, than a trade deficit exists.
Consumption (C) by households is the largest component of GDP, accounting for about two-thirds of the GDP in any year. However, consumption is a gentle elephant: when viewed over time, it doesn’t jump around too much.
Investment (I) by businesses refers to real purchases of physical plant and equipment by businesses. Investment demand is far smaller than consumption demand, typically accounting for only about 15–20% of GDP. However, it moves up and down more noticeably than consumption. Investment is a cat in a bag: it jumps around unexpectedly.
Government (G) demand in the United States appears relatively small, at about 20% of GDP. This proportion may seem too low. Indeed, government in the United States (including the federal, state and local levels) collects about one-third of GDP in taxes. However, much of that money is passed directly to citizens, through programs like Social Security, welfare payments to the poor, or interest payments on past government borrowing. In these cases, the money that passes through government hands is counted as part of consumption. The only part of government spending counted in demand is—returning to the basic definition of GDP—government purchases of goods or services produced in the economy. Examples would include when the government buys a new fighter jet for the Air Force or when it pays workers who deliver government services.
Type: Essay
*8. *If you compare the change in GDP to the change in per capita GDP, which would you expect to be larger? Why?
Explanation: Per capita GDP = GDP/population. As long as population growth is positive, then the rise in per capita GDP will be lower than the rise in total GDP. However, if population was declining, then it would be possible for the rise in per capita GDP to exceed the rise in GDP. (population declines are rare)
Type: Essay
*9. **Year Real GDP per Capita*
1985 6,000
1986 6,300
1987 6,700
1988 7,200
1989 7,850
1990 8,250
1991 8,450
1992 8,550
1993 8,575
1994 8,510
1995 8,370
1996 8,100
1997 7,950
1998 7,925
1999 7,960
2000 8,035
2001 8,155
The information above describes the real GDP per capita for a country for the period from 1985 through to 2001.
a. If a new business cycle began in 1985, how long was this cycle?
b. In which year did the peak occur? The trough occurred in which year?
c. How long was the expansion? How long was the recession?
Explanation: a. 14 years
b. 1993; 1998
c. 9 years; 5 years
Type: Essay
