Question 1

Investment spending is a flow variable; inventories are a stock variable.

Accepted Answer

A) True 
 B)False

Question 2

The consumer price index measures changes in

Accepted Answer

A)  the prices of all goods and services
B)  the prices of goods that are sold
C)  the total cost of a specific market basket of consumer goods and services
D)  the total costs of all goods and services
E)  the total costs of goods and services purchased by firms

Question 3

A firm run by a rational entrepreneur would want to hold inventories.

Accepted Answer

A) True 
 B)False

Question 4

A shortcoming of national income accounting is that it ignores

Accepted Answer

A)  the depreciation of manufactured capital
B)  spending by poor households who are receiving government transfer payments
C)  spending on items such as handguns and attack dogs, since they represent a decline in social well-being
D)  the depletion of natural resources
E)  U.S. production that is sold overseas

Question 5

Which of the following is an injection into the circular flow?

Accepted Answer

A)  savings
B)  taxes
C)  government borrowing
D)  investment
E)  imports

Question 6

Which of the following is the best example of an investment as defined by economists?

Accepted Answer

A)  a household's purchase of 100 shares of Apple computer stock
B)  a firm's purchase of 100 shares of General Electric stock
C)  a firm's purchase of a bond issued by General Mills
D)  a firm's purchase of a U.S. savings bond
E)  a firm buying personal computers for its secretarial staff

Question 7

Gross Domestic Product includes final goods and services, but not intermediate goods because

Accepted Answer

A)  intermediate goods are not part of investment spending
B)  the value of the intermediate goods is already included in the value of the final goods
C)  the value of the intermediate goods is already included as inventory investment
D)  intermediate goods are only produced by government
E)  intermediate goods are not current production

Question 8

Given the following hypothetical data: C = $3,000; I = $1,200; G = $2,000; X - M = -$500; depreciation = $200; transfer payments = $800, net domestic product is

Accepted Answer

A)  $5,500
B)  $5,700
C)  $6,200
D)  $6,400
E)  $6,900

Question 9

Which is not a shortcoming of GDP accounting?

Accepted Answer

A)  It ignores the underground economy.
B)  It excludes household production.
C)  It excludes the value of leisure time.
D)  It ignores changes in population.
E)  It has no mechanism for adjusting the figures for inflation.

Question 10

Which of the following statements about exports and imports is true?

Accepted Answer

A)  Both imports and exports are added to a nation's GDP.
B)  Both imports and exports are subtracted from a nation's GDP.
C)  Imports are added to a nation's GDP; exports are subtracted.
D)  Exports are added to a nation's GDP; imports are subtracted.
E)  Neither imports nor exports are included in a nation's GDP.

Question 11

GDP is a poor measure of social well-being because

Accepted Answer

A)  the value of leisure time is not counted in GDP
B)  revenue earned on U.S. exports is ignored
C)  each dollar of government spending is valued at less than one-half of private spending
D)  consumer spending is more important than business spending and should be considered more valuable
E)  it values products at their market prices but ignores services produced

Question 12

Which of the following is an injection into the circular flow?

Accepted Answer

A)  taxes
B)  saving
C)  transfer payments
D)  government borrowing
E)  disposable income

Question 13

Double counting in the value added approach to GDP statistics is avoided by

Accepted Answer

A)  correct accounting of the values of exports and imports
B)  choosing only one method to calculate GDP--either the income or the expenditures method
C)  counting only the value added at each stage of a good's production process
D)  counting the value of final and intermediate goods and services
E)  subtracting the total value of intermediate goods and services from the total value of final goods and services

Question 14

In GDP measurement, Investment spending includes

Accepted Answer

A)  spending by individual households on automobiles and durable goods
B)  spending by businesses on labor resources
C)  changes in business inventories
D)  spending by government on salaries
E)  spending by households on stocks and bonds

Question 15

If the CPI rises in one year from 220 to 230, the inflation rate is 10 percent.

Accepted Answer

A) True 
 B)False

Question 16

If a firm hires labor for $8,000, pays rent of $4,000, buys raw materials for $13,000, earns profits of $1,200, and sells its output for $31,000, the firm's value added is

Accepted Answer

A)  $4,800
B)  $10,000
C)  $18,000
D)  $25,000
E)  $26,200

Question 17

It is not possible for the government to spend more than it collects in taxes.

Accepted Answer

A) True 
 B)False

Question 18

Consumption in the expenditures approach to calculating GDP includes

Accepted Answer

A)  spending by businesses on plant and equipment
B)  spending by government on office buildings
C)  spending by households on new single-family houses
D)  changes in business inventories
E)  purchases of medical services at the local clinic

Question 19

The CPI __________ inflation because it includes an item in the market basket only after the product becomes __________.

Accepted Answer

A)  overstates, unpopular
B)  overstates, obsolete
C)  overstates, widely used
D)  understates, widely used
E)  understates, obsolete

Question 20

Use the following data to calculate GDP: consumption = $5,000; gross investment = $800; government purchases = $700; exports = $30; imports = $60; transfer payments = $340.

Accepted Answer

A)  GDP = $7,400
B)  GDP = $7,740
C)  GDP = $3,140
D)  GDP = $6,470
E)  GDP cannot be determined due to insufficient data

Exam 7: Tracking the Us Economy

Double counting in the value added approach to GDP statistics is avoided by

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If the CPI rises in one year from 220 to 230, the inflation rate is 10 percent.

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It is not possible for the government to spend more than it collects in taxes.

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Consumption in the expenditures approach to calculating GDP includes

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In GDP measurement, Investment spending includes

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Which of the following is an injection into the circular flow?

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Gross Domestic Product includes final goods and services, but not intermediate goods because

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A shortcoming of national income accounting is that it ignores

Correct AnswerverifiedShow Answer

GDP is a poor measure of social well-being because

Correct AnswerverifiedShow Answer

The consumer price index measures changes in

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Which of the following statements about exports and imports is true?

Correct AnswerverifiedShow Answer

If a firm hires labor for $8,000, pays rent of $4,000, buys raw materials for $13,000, earns profits of $1,200, and sells its output for $31,000, the firm's value added is

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The CPI __________ inflation because it includes an item in the market basket only after the product becomes __________.

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A firm run by a rational entrepreneur would want to hold inventories.

Correct AnswerverifiedShow Answer

Which is not a shortcoming of GDP accounting?

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Which of the following is the best example of an investment as defined by economists?

Correct AnswerverifiedShow Answer

Investment spending is a flow variable; inventories are a stock variable.

Correct AnswerverifiedShow Answer

Use the following data to calculate GDP: consumption = $5,000; gross investment = $800; government purchases = $700; exports = $30; imports = $60; transfer payments = $340.

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Which of the following is an injection into the circular flow?

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Given the following hypothetical data: C = $3,000; I = $1,200; G = $2,000; X - M = -$500; depreciation = $200; transfer payments = $800, net domestic product is

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The CPI inflation because it includes an item in the market basket only after the product becomes .

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