Macroeconomics Ch 7

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QuestionThe economic crisis in Portugal in December 1975:Answer was inevitable because capitalism does not work in Europe.

ended in the government's seizing control of the nation's factories. was somewhat overstated due to problems in measuring economic activity. caused Poland to lose its membership in the European Union.

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QuestionAccording to the circular flow diagram, which of the following economic agents engages in consumer spending?Answer firms

households factor markets financial markets

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QuestionA share in the ownership of a company held by a shareholder is considered a(n):Answer bond.

stock. dividend. IOU.

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QuestionWhich of the following would accurately characterize the portion of a firm's profit paid to the owner of one share of its stock?Answer interest

dividend stock bond

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QuestionWhich of the following is considered to be an IOU?Answer stock

bond interest dividend

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QuestionHouseholds derive income from all of the following except:Answer wages or labor income.

interest from lending. rent from allowing firms to use their land. imports.

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QuestionTotal income households have after paying taxes and receiving government transfers is called:Answer disposable income.

private savings. aggregate spending. investment.

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QuestionThe national accounts keep track of all except:Answer the spending of consumers and the government.

the sales of producers. business investment. exchange rates.

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QuestionPrivate savings is:Answer disposable income less taxes.

disposable income less consumption. wealth. wealth plus government transfer payments.

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QuestionA stock in a company is:Answer a share of ownership of a company held by a shareholder.

an IOU that pays interest. a portion of a firm's profits paid to stock owners. part of private savings.

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QuestionA bond is:Answer a share of ownership of a company held by a shareholder.

an IOU that pays interest. a portion of a firm's profits paid to stock owners. part of private savings.

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QuestionFigure: Circular Flow Model

Reference: Ref 7-01

(Figure: Circular Flow Model) What is GDP in this economy?Answer $100

$400 $500 $600

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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is an increase in consumer spending?Answer an increase in the nominal GDP

a decrease in the nominal GDP an increase in the unemployment rate a decrease in the inflation rate

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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is a decrease in consumer spending?Answer an increase in the nominal GDP

an increase in the real GDP an increase in the unemployment rate an increase in the inflation rate

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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is an increase in investment spending?Answer a decrease in the nominal GDP

an increase in the nominal GDP an increase in the unemployment rate

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a decrease in the inflation rate

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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is a decrease in investment spending?Answer an increase in the nominal GDP


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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is an increase in government spending?Answer an increase in the nominal GDP

a decrease in the real GDP an increase in the unemployment rate a decrease in the inflation rate

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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is a decrease in government spending?Answer an increase in the nominal GDP


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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is an increase in exports?Answer a decrease in the nominal GDP

a decrease in the real GDP a decrease in the unemployment rate a decrease in the inflation rate

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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is a decrease in exports?Answer a decrease in the nominal GDP

an increase in the real GDP a decrease in the unemployment rate

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an increase in the inflation rate

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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is an increase in imports?Answer an increase in the nominal GDP

a decrease in the nominal GDP a decrease in the unemployment rate an increase in the nominal GDP and in the unemployment rate

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Reference: Ref 7-01

(Figure: Circular Flow Model) If the circular flow model is in equilibrium (the sum of money flows into each box is equal to the sum of the money flows out of that box), which of the following is likely to happen if there is a decrease in imports?Answer an increase in the nominal GDP

a decrease in the nominal GDP an increase in the unemployment rate an increase in the nominal GDP, a decrease in the nominal GDP, and an increase in the unemployment rate

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Reference: Ref 7-01

(Figure: Circular Flow Model) What are net exports in this economy?Answer $0

$30 $60 $100

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Reference: Ref 7-01

(Figure: Circular Flow Model) What is disposable income in this economy?Answer $0

$100 $400 $500

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Reference: Ref 7-01

(Figure: Circular Flow Model) How does the government finance its purchases of goods and services?Answer by printing money

by taxes by borrowing by taxes and borrowing

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QuestionIn the circular flow model, households:Answer receive transfer payments from the government.

buy resources in the factor markets. sell products in the market for goods and services. issue stocks and bonds to raise capital.

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QuestionThe indirect ownership of physical capital refers to households owning:Answer cash.

stock. savings accounts. their houses.

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QuestionThe money spent on domestically produced final goods and services:Answer is the GDP.

appears as income to someone. appears in the circular flow model. is the GDP, appears as income to someone, and appears in the circular flow model.

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QuestionMost households derive the bulk of their income from which of the following sources?Answer wages

interest profit rent

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QuestionAn example of a government transfer is a(n):Answer expenditure on an interstate highway.

bequest from a deceased relative. Social Security payment. salary for members of the armed forces.

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QuestionWhich of the following would NOT be considered a government transfer?Answer unemployment compensation

food stamps payments by the Defense Department for a new weapons system Medicare benefits paid to someone who is indigent

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QuestionDisposable income equals:Answer income plus government transfers minus taxes.

income plus government spending minus taxes. income minus taxes plus government spending. income minus taxes minus government transfers.

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QuestionThe market(s) that channel excess savings of households into investment spending by firms is(are) known as:Answer the stock market.

the financial markets. the international market. the bond market.

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QuestionGoods that are produced domestically but sold abroad are:Answer imports.

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exports. part of domestic consumption. investment.

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QuestionInvestment spending represents spending on:Answer productive physical capital.

stocks. mutual funds. corporate bonds.

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QuestionDisposable income in a particular period is:Answer total income earned.

income earned plus government transfer payments. income earned plus government transfer payments less taxes. income earned plus government transfer payments less taxes and savings.

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QuestionGoods and services sold to people in other countries are known as:Answer imports.

investments. exports. transfer payments.

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QuestionInvestment spending is:Answer spending on productive physical capital.

spending on bonds. spending on shares of stock. spending on productive physical capital, on bonds, and on shares of stock.

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QuestionAn example of investment spending would be:Answer purchase of a bond.

purchase of a loaf of bread. purchase of a new productive machine. purchase of a bond, a loaf of bread or a new productive machine.

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QuestionGovernment borrowing is:Answer the amount of funds raised by government in the financial markets.

government spending on goods and services. government tax revenues. the amount of funds raised by government in the financial markets, government spending on goods and services, and government tax revenues.

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QuestionIf we add up the consumer spending on goods and services, investment spending, government purchases of goods and services, and the value of exports, then subtract the value of imports, we have measured the nation's _____.Answer disposable income.

gross domestic product. trade deficit. value added.

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QuestionWhich of the following represents an outflow of funds from a domestic economy?Answer household savings

government tax collections government transfer payments imports

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QuestionThe value, at current market prices, of the final goods and services produced during a particular period is:Answer disposable personal product.

gross foreign factor output. gross personal product. gross domestic product.

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QuestionIf we add up all the values added at every stage of production for a good, we will get:Answer the total cost of the labor used to produce the good.

the prices of the factors of production used to produce the good. the final value of the good. the intermediate value of the good.

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QuestionGross domestic product is defined as:Answer consumer spending + government purchases + financial spending + exports imports.

consumer spending + government transfers + investment spending + exports imports. disposable income + taxes + investment spending + exports + imports. consumer spending + government purchases + investment spending + exports imports.

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QuestionWhich of the following is the best definition of GDP?Answer the total dollar value of all final goods and services produced in the economy during a given year

the total value of all goods and services produced in the economy during a given year the total value of all primary, intermediate, and final goods and services produced in the economy during a given year the total value of all goods and services produced and sold in the economy during a given year

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QuestionGross domestic product or GDP is:Answer the total dollar value intermediate goods and services produced in the economy in a given time period.

the total dollar value of wages paid to producing workers in a given time period. the total dollar value of final goods and services produced in the economy in a given time period. the total dollar value of government production in a given time period.

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QuestionGDP is the:Answer total market value of all final goods and services produced in one year.

total accumulated wealth of an economy. volume of all dollar transactions made in an economy in one year. dollar amount of all sales made in the economy in one year.

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QuestionGross domestic product is the economy's total production of _______ for a given time period.Answer good and services

final goods and services intermediate goods and services consumer goods and services

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QuestionWhich of the following is false? Gross domestic product:Answer is aggregate output.

is the total production of final goods and services. grows during an expansion. is the total production of all final and intermediate goods and services.

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QuestionWhich one of the following transactions is included in a current year's GDP as investment spending?

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Answer ABC company purchased 10,000 shares of IBM stock. Ronnie bought a new BMW. Anton purchased his friend's condo. Maggie bought a play-gym set for her day-care business.

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QuestionTable: Calculating GDP

Reference: Ref 7-02

(Table: Calculating GDP) Using the information in the table provided, which of the following is the correct calculation for GDP in 2008?Answer $47,475

$12,200 $21,485 $34,085

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QuestionWhich one of the following is an example of consumption expenditure?Answer Samantha bought an oven for her cooking show on Food Network.

Stephanie bought a laptop for her brother. Jim purchased 200 shares of Google stock. Mr. Smith spent $1500 to buy a used car for his son.

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QuestionGDP is the sum of:Answer personal consumption, investment, government purchases, exports and imports.

personal consumption, investment, government purchases, and net exports. personal consumption, investment, government purchases, and net imports. value added, net imports, and government purchases.

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QuestionTable: GDP

Reference: Ref 7-03

(Table: GDP) The GDP for 2007, was:Answer $94 billion.

$188 billion. $168 billion. $139 billion.

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QuestionThe Arcadia Entertainment Co. produced 20,000 DVD's of the movie Hulk in 2007. Only 4000 copies remained unsold at the end of 2007, as a result:Answer only 16,000 DVD's should be included in GDP in 2007 as consumption expenditure.

all 20,000 DVD's will be included in GDP in 2007, 16,000 as consumption expenditure and 4,000 as investment

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expenditure only 16,000 DVD's are included in GDP of 2007, remaining 4,000 is counted in GDP of 2008. all 20,000 DVD's are initially counted in 2007 GDP as consumption expenditure, but subtracted and added to 2008 GDP as the merchandise gets sold.

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QuestionIn 2008, consumption spending is $7,000, government purchases is $2,000 and investment spending is $1,500. If GDP for 2008 is $10,300, then:Answer export is $400 and import is $200.

export is $100 and import is $200. export is $600 and import is $800. export is $500 and import is $300.

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QuestionA transfer payment is a payment for:Answer a military transfer to a war-zone.

which no services were rendered during the current year. transfer of a debt to a different person. being transferred to a different city by your employer.

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QuestionEnchante Inc., a designer clothing company buys $400 worth of silk from a silk trader, and $30 worth of accessories from AccessoriesRUs to produce each dress. If the value-added by Enchante is equal to $200, then according to the value-added approach, the price of the designer dress should be:Answer $630.

$230. $200. $830.

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QuestionThe Boeing Corporation buys $3 million worth of steel from the Steel manufacturers, $2.5 million worth of computerized hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing Corporation sells this particular model of aircraft at $10 million. The value-added by Boeing is equal to:Answer $3.5 million.

$16.5 million. $13 million. $15.5 million.

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QuestionWhich one of the following equations correctly measures GDP?Answer C + I + G + IM X

C + I + G + X IMC + I + G + X + IMC + I + G T + TR

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QuestionDon has built an extension to his house, this transaction will be:Answer not included in GDP because it is not produced for the marketplace.

included in GDP because Don is a professional builder. not included in GDP because it is an intermediate good. included in GDP because building is Don's hobby.

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QuestionWhich one of the following transactions will be included in the official measurement of GDP?Answer Stan sold his house at a huge gain.

Monica illegally downloaded movies to her laptop. Ben won the state lottery. Sean bought a new iPhone.

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QuestionAn example of an intermediate good will be:Answer

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wages paid to an employee. steel purchased by the aircraft manufacturers. vegetables purchased for your dinner. electric bills for the office.

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QuestionThe intermediate goods are not counted in the calculation of GDP, because:Answer that involves double-counting.

these goods are not produced for the market. these are produced in the underground economy. these goods involve financial transactions.

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QuestionWhich of the following would NOT be included in this year's GDP?Answer the production of a television show

the purchase of a new work truck the hiring of a new police officer your purchase of your neighbor's 2001 Toyota

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QuestionWhich of the following best represents the equation for GDP?Answer GDP = C+ I + G X + IM

GDP = C + I + G + X IM GDP = C + I + G + Taxes Value Added GDP = C + I + G + Taxes + X + IM

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QuestionOf the following items, which would NOT be included in GDP?Answer the dollar value of a repair job done by your professor on his or her own car

the dollar value of a lawyer's service new car sales by a local car dealer the production of new cars that were not sold in the current year

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QuestionGoods that are produced in a particular period but not sold in that period:Answer count as consumption in the next year.

are included in investment. are treated like exports. are classified as purely financial transactions.

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QuestionPurchases of foreign-produced goods and services during a period are:Answer net exports.

exports. imports. transfer payments.

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QuestionA country's exports minus its imports during a period are:Answer net exports.

gross exports. net imports. gross imports.

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QuestionNet exports are calculated by subtracting:Answer imports from exports.

exports from imports. out all intermediate goods. I, G, and value added from GDP.

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QuestionA nation's exports minus its imports:Answer equals its private investment.

is net exports. is always a positive number. is equal to net transfer payments.

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QuestionWhich of the following would NOT be a part of GDP?Answer used car sales

new residential construction a new truck purchased by a building contractor telephone service purchased for a home

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QuestionAn intermediate good would be:Answer a new boat purchased by a professor to be used on vacation.

lumber used in building a house. payments to military personnel. a professor's salary.

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QuestionThe total volume of business sales in the economy is much larger than GDP because:Answer GDP understates the value of total output.

the output approach to measuring GDP excludes intermediate transactions. GDP includes transfer payments. GDP excludes exports.

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QuestionIn the United States:Answer GNP is about twice GDP.

GDP is about twice GNP. GDP exceeds GNP by depreciation plus indirect business taxes. GNP and GDP are about equal.

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QuestionWhich of the following would NOT be included in this year's GDP?Answer the production of a television show

the purchase of a new hybrid truck the hiring of a new school teacher your purchase of your neighbor's house which was built in 1994

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QuestionIf your professor wins the lottery:Answer GDP goes up.

GDP goes down. GDP is not affected. the economy will clearly be better off.

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QuestionGoods that are produced in a particular period but NOT sold in that period:Answer go into inventories and are called consumption.

end up in inventories and are included in investment. are finally included in depreciation when they are sold. are classified as intermediate goods.

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QuestionWhich of the following would be classified as consumption?

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Answer a new computer purchased by Federal Express for one of its corporate executives. a storage facility for a moving company. a new car purchased by an employee of a company for personal use. a dump truck purchased by a demolition company.

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QuestionWhich of the following would be an example of an intermediate good?Answer stocks and bonds purchased by a business executive

a cellular telephone purchased by a college student a wedding ring purchased by an engineer for his fiance tires purchased from Goodyear by General Motors for newly produced electric cars

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QuestionThe purchases of which of the following goods are included in GDP?Answer used goods

newly issued stocks foreign-produced investment goods capital goods

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QuestionInventory investment is counted as investment because:Answer inventory is used for future production.

inventory is a source of future sales. inventory has no opportunity cost. inventory is tax deductible.

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QuestionThe reason the dollar value of only final goods and services are counted in GDP is that:Answer we can only measure the value of final goods and services and can not measure the value of inputs.

if we counted the value of all goods we would count inputs, like the value of steel in a new automobile, more than once. intermediate goods reduce GDP. only final goods and services matter for the economy.

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QuestionThe value of all the following goods is included in the calculation of Gross Domestic Product EXCEPT:Answer the value of Firestone tires sold at your local garage.

the value of Bridgestone tires purchased by Ford Motor Co. the value of Goodyear tires purchased by the United States Secret Service. the value of Michelin tires purchased by Canadian car collectors.

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QuestionA country's Gross National Product (GNP):Answer must be larger than its Gross Domestic Product (GDP).

is the total factor income earned by residents of a country. includes factor income earned by foreigners. excludes factor income earned abroad by Americans.

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QuestionTable: Furniture Production Schedule

Reference: Ref 7-04

(Table: Furniture Production Schedule) What is the value added at all stages of the production process of the furniture as described in the accompanying table?Answer $800

$1,200 $1,800 $2,000

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QuestionWhich of the following is NOT included in investment spending in the national income accounts?Answer new residential construction

the purchase of machinery and other productive physical capital the purchase of stocks and bonds by a business spending on inventories

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QuestionSuppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses the wheat to make flour and then hamburger buns, which they sell to Hamburger Heaven for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger Heaven uses the beef and buns to make 10,000 hamburgers which are sold for $5 each. How much do these transactions add to GDP?Answer $86,000

$36,000 $31,000 $50,000

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QuestionValue added in national income accounts refers to the:Answer value added by labor to the production process.

difference in the final price and the value of inputs purchased. difference in profits at various stages of production. value of all the inputs used by the final producer.

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QuestionTable: Measuring GDP

Reference: Ref 7-05

(Table: Measuring GDP) GDP is:Answer $500 billion.

$850 billion. $995 billion. $1,000 billion.

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Reference: Ref 7-05

(Table: Measuring GDP) Total expenditures on GDP by the household sector are:Answer $100 billion.


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Reference: Ref 7-05

(Table: Measuring GDP) Government purchases of goods and services are:Answer $50 billion.


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Reference: Ref 7-05

(Table: Measuring GDP) Exports are:Answer $5 billion.


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QuestionA laptop computer purchased by an accounting firm is considered to be:Answer consumption spending.

investment spending. private saving. a pre-tax dividend.

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QuestionAn example of investment spending is:Answer the amount of funds raised by the government in the financial markets.

the purchase of government bonds by a private household. the purchase of a freezer by an ice-cream parlor. the purchase of stock shares by a mutual fund.

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QuestionWhich of the following is included in GDP?Answer the purchase of 100 shares of Microsoft stock

the purchase of a 1965 Ford Mustang Social Security payments from the U.S. government to retired people the purchase of a ticket to a Rolling Stones concert

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QuestionA laptop computer purchased by a private individual is considered to be:Answer consumption spending.

investment spending. private saving. a transfer of income.

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QuestionSuppose that a doctor who lives alone hires the services of a maid and pays her $15,000 a year to clean his house. Suppose that he marries her the following year. Other things equal, which of the following can we safely conclude would be true about the reported official GDP the following year?Answer It would rise.

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It would fall. It would stay the same. There is not enough information to evaluate the impact that it would have on GDP.

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QuestionGDP excludes all of the following EXCEPT:Answer the value of leisure.

damage done to the environment. the value of housework. the value of owner-occupied housing.

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QuestionWhich of the following would be included in the calculation of GDP?Answer expenditure on new construction

a retiree's monthly Social Security check buying an existing house buying shares of Home Depot stock

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QuestionIncluded in GDP would be:Answer the dollar value of a used car sold during the period.

the dollar value of a new car imported during the period. the dollar value of a new car exported during the period. the purchase of 100 shares of General Motors stock.

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QuestionThe value of which of the following would be counted in GDP?Answer glass for windshields purchased by a car manufacturer

a new car sold by a car dealer a used car sold by a car dealer a share of stock in a car manufacturer

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QuestionWhich of the following transactions would be included in the nation's gross domestic product?Answer A college student buys a used textbook from his roommate.

A construction company purchases lumber to use in building a new house. A college student has a pizza delivered to her dormroom. A group of college students volunteer to rake leaves at an assisted living facility for senior citizens.

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QuestionIf during 2005, the country of Sildavia recorded investment spending for $3 billion, government purchases for $3 billion, consumer spending for $7 billion, imports for $5 billion, government transfers for $1 billion, and exports for $3 billion. Sildavia's GDP in 2005 was:Answer $11 billion.


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QuestionSuppose a consumer buys a frozen cheese pizza at the grocery store at a price of $10. The frozen pizza company sold the pizza to the store for $5. The frozen pizza company purchased the pizza dough and tomato sauce from a food processing company at a price of $2 and bought the cheese from a dairy at a price of $1. How much has GDP increased?Answer $2

$5 $10 $18

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QuestionThe equation that breaks GDP down by the four sources of aggregate spending is:Answer GDP = C + I + G + X + IM

GDP = C + I + G X IM GDP = C I G X + IM

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GDP = C + I + G + X IM

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QuestionWhich of the following transactions would not be counted in the GDP for the United States?Answer Nike builds a Niketown retail store in Chicago.

Your mother buys a pound of Washington grown apples at the grocery store. Your mother buys 100 shares of Nike stock. The Indiana state government spends taxpayer money to repair a damaged bridge over the Wabash River.

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QuestionGross Domestic Product (GDP) is:Answer the total dollar value of all transactions in the economy in a year.

the total value of all final goods and services produced in the economy in a year. the total value of all final goods and services produced by Americans at home and abroad in a year. the total dollar value of all goods produced in the economy in a year.

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QuestionGross Domestic Product (GDP) may be calculated as the sum of:Answer consumer spending, investment spending, government purchases of goods and services, and exports minus imports.

consumer spending, investment spending, government transfer payments, and exports minus imports. consumer spending, investment spending, government purchases of goods and services, and exports. exports and imports only.

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QuestionTable: Pizza Economy I

Reference: Ref 7-06

(Table: Pizza Economy I) Based on the accompanying table, GDP in this economy is:Answer $73,000.

$65,000. $57,000. $51,000.

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QuestionTable: Pizza Economy II

Reference: Ref 7-07

(Table: Pizza Economy II) Based on the accompanying table, GDP in this economy is:Answer $74,000.

$45,000. $29,000. $16,000.

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QuestionIf during 2009 the country of Sildavia recorded a value added of $78 billion, wages of $40 billion, profits of $8 billion, and total sales of $90 billion, the value of intermediate goods purchased during 2009 in Sildavia was:Answer $42 billion.


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QuestionIf during 2009, the country of Sildavia recorded a GDP of $65 billion, interest payments of $15 billion, imports of $13 billion, profits of $7 billion, exports of $15 billion, and rent of $7 billion, wages during 2009 in Sildavia were:

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Answer $36 billion. $38 billion. $51 billion. $64 billion.

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QuestionHouseholds receive income in the form of all the following EXCEPT:Answer wages.

dividends. interest and rent. investment spending.

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QuestionIn the United States, consumer spending accounts for approximately what percentage of GDP?Answer 50%

60% 70% 80%

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QuestionThe largest component of U.S. GDP involves value added in:Answer household production.

business production. government production. production of goods sold overseas.

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QuestionIn the United States, investment spending accounts for approximately what percentage of GDP?Answer 6%

16% 24% 33%

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QuestionIn the United States, government spending accounts for approximately what percentage of GDP?Answer 7%

9% 19% 29%

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QuestionIn 2007, _____ was the largest component of U.S. GDP, at 70% of the total aggregate spending.Answer government spending

consumer spending investment spending net export spending

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QuestionGDP tends to understate our economic well being because it:Answer includes the value of services produced in the home.

excludes the value of leisure. includes expenditures on crime prevention equipment. includes health care costs related to the consumption of cigarettes.

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QuestionGDP tends to overstate our economic well being by including which of the following?Answer expenditures on crime prevention

payments for cleaning up the environment repairs to structures destroyed by storms

expenditures on crime prevention, payments for cleaning up the environment, and repairs to structures destroyed by

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storms

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QuestionThe person who is usually credited with developing national income accounts is:Answer Adam Smith.

John Maynard Keynes. Simon Kuznets. Milton Friedman.

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QuestionThe value of all the following goods is included in the calculation of aggregate output EXCEPT:Answer the value of Firestone tires sold at your local garage.

the value of a new shower installed in a recently purchased 1920's house. the value of the 6-CD player installed to replace the factory-mounted radio-cassette in your new car. the value of Firestone tires installed on brand-new Volvo station wagons.

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QuestionThe actual numerical measure of aggregate output typically used by economists is called:Answer aggregated output.

nominal gross domestic product. net domestic product. real gross domestic product.

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QuestionReal GDP is nominal GDP adjusted for:Answer double counting.

changes in prices. population. imports.

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QuestionIf real GDP rises while nominal GDP falls, then prices on average have:Answer risen.

fallen. stayed the same. Real GDP can not rise when nominal GDP falls.

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QuestionConsider an economy that only produces two goods: DVDs and DVD players. If 10 DVDs are sold at $20 each and 5 DVD players are sold at $100 each, then nominal GDP is:Answer $100.

$700. $1,100. $900.

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QuestionConsider an economy that only produces two goods: DVDs and DVD players. Last year, 10 DVDs were sold at $20 each and 5 DVD players were sold at $100 each, while this year 15 DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Nominal GDP this year is:Answer $100.

$650. $700. $500

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QuestionConsider an economy that only produces two goods: DVDs and DVD players. Last year, 10 DVDs were sold at $20 each and 5 DVD players were sold at $100 each, while this year 15 DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Real GDP this year using last year as the base year is:Answer $100.

$700. $1,300.

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$300

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QuestionSuppose that nominal GDP is $1000 in 2006 and nominal GDP is $1500 in 2007. If the overall price level ____ between 2006 and 2007, we could say that real GDP _____.Answer increased by 50%; stayed constant.

increased by less than 50%; decreased. increased by more than 50%; increased. increased by 50%; increased.

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QuestionTable: Peanut Butter and Jelly Economy

Reference: Ref 7-08

(Table: Peanut Butter and Jelly Economy) A simple economy produces only peanut butter and jelly. Using the data in the attached table, nominal GDP in 2009 was ____ and real GDP in 2009 was _____.Answer $450; $400

$525; $450 $525; $400 $450; $575

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QuestionTable: Peanut Butter and Jelly Economy

Reference: Ref 7-08

(Table: Peanut Butter and Jelly Economy) A simple economy produces only peanut butter and jelly. Using the data in the attached table, from 2008 to 2009 real GDP ____ by _____%.Answer increased; 12.5

decreased; 50 increased; 43.75 decreased; 12.5

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QuestionTable: Price and Output Data

Reference: Ref 7-09

(Table: Price and Output Data) The value of Year 4's output in nominal dollars is:Answer $6.

$24. $30. $36.

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Reference: Ref 7-09

(Table: Price and Output Data) The value of Year 2's output in real dollars is:Answer $4.

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$12. $15. $16.

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Reference: Ref 7-09

(Table: Price and Output Data) The value of Year 3's output in real dollars is:Answer $5.

$20. $27. $36.

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QuestionTable: Real and Nominal Output

Reference: Ref 7-10

(Table: Real and Nominal Output) Nominal GDP in Year 4 is equal to:Answer $40.

$60. $100. $280.

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Reference: Ref 7-10

(Table: Real and Nominal Output) Nominal GDP in Year 2 is equal to:Answer $40.

$60. $100. $280.

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Reference: Ref 7-10

(Table: Real and Nominal Output) The year in which the increase in nominal GDP is exclusively due to the increase in the price level rather than physical output is Year:Answer 2.

3. 4. 6.

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QuestionChained dollars:Answer is money that banks are required to keep in their vaults to back deposits.

is the measure for the value of intermediate goods. is a method for calculating changes in real GDP which uses an early base year and a late base year. is a method used to convert real to nominal GDP.

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QuestionReal GDP is:Answer the value of the production of all final goods and services measured in current prices.

the value of the production of all final goods and services adjusted for price changes. the projected future value of GDP. calculated by adding up only the real number of all items sold in the U.S. regardless of their prices.

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QuestionWhen measuring a nation's standard of living, of the following, the best measure is:Answer nominal GDP.

market GDP. real GDP per capita. nominal GDP per capita.

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QuestionDividing real GDP by the population:Answer will result in consumption per capita.

results in nominal GDP per person. gives real GDP per capita. is a measure of happiness.

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QuestionUse this scenario to answer questions 145148.Scenario: Real GDPSuppose that in Year 1 an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year the economy produces 110 golf balls that sell for $3.25 each and 80 pizzas that sell for $9 each.Reference: Ref 7-11

(Scenario: Real GDP) The value of nominal GDP in Years 1 and 2 respectively is:Answer $900; $1,077.50.

$900; $990. $180,000; $257,400. $1,000; $1,005.

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(Scenario: Real GDP) Using Year 1 as the base year, real GDP in Year 2 is:Answer $900.

$970. $1,000. $1,077.50.

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(Scenario: Real GDP) The growth rate of nominal GDP from Year 1 to Year 2 is:Answer 10%.

7.8%. 19.7%. 8.8%.

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(Scenario: Real GDP) Using Year 1 as the base year, the growth rate of real GDP from Year 1 to Year 2 is:Answer 10%.

7.8%. 19.7%. 8.8%.

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QuestionTable: Pizza Economy III

Reference: Ref 7-12

(Table: Pizza Economy III) Considering 2008 as the base year, nominal GDP in 2009 was:Answer $47,000.

$69,000. $72,000. $114,000.

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Reference: Ref 7-12

(Table: Pizza Economy III) Considering 2008 as the base year, real GDP in 2009 was:Answer $47,000.

$69,000. $72,000. $114,000.

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Reference: Ref 7-12

(Table: Pizza Economy III) Considering 2008 as the base year, real GDP between 2008 and 2009 grew at a rate of:Answer 53.19%.

39.47%. 39.47%. 58.67%.

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Reference: Ref 7-12

(Table: Pizza Economy III) Considering 2008 as the base year, given that total population was 1,140 in 2008 and 1,300 in 2009, real GDP per capita in 2008 was:

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Answer $80. $53. $60. $100.

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Reference: Ref 7-12

(Table: Pizza Economy III) Considering 2008 as the base year, given that total population was 1,140 in 2008 and 1,380 in 2009, real GDP per capita between 2008 and 2009 grew at a rate of:Answer 50%.

25%. 50%. 75%.

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QuestionNominal GDP may be used to compare:Answer the dollar amount of final goods produced in different years.

the price of final goods times the number of goods produced in one year. output if prices are held constant. living standards among different countries.

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QuestionNominal GDP:Answer has not been adjusted for changes in prices over time.

has been adjusted for changes in prices over time. is a small or nominal amount of output. excludes the international sector.

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QuestionIf both aggregate output and the aggregate price level increase:Answer real GDP will increase faster than nominal GDP.

nominal GDP will increase faster than real GDP. it makes no difference to real or nominal GDP. real GDP and nominal GDP will increase faster than the price level.

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QuestionIf nominal GDP increased from one year to the next, we can conclude that:Answer prices rose from one year to the next.

real GDP rose from one year to the next. prices and real GDP rose from one year to the next. prices rose from one year to the next, real GDP rose from one year to the next or that prices and real GDP rose from one year to the next.

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QuestionIf nominal GDP decreased from one year to the next, we can conclude that:Answer prices fell from one year to the next.

real GDP fell from one year to the next. prices and real GDP fell from one year to the next. prices fell from one year to the next, real GDP fell from one year to the next, or that prices and real GDP fell from one year to the next.

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QuestionAssume that the real GDP of the U.S. is approximately $12 trillion and the population of the United States is approximately 300 million. What is per capita real GDP?Answer $4,000

$36,000

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$40,000 Real per capita GDP can't be determined without more information.

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QuestionIf nominal GDP of 2009 is higher than nominal GDP of 2008, we can state that:Answer production in 2009 is higher than production in 2008, while prices remain unchanged.

production or prices or both are higher in 2009, compared to 2008. prices in 2009 are higher than prices in 2008, while production remains unchanged. production in 2009 has gone down while prices have increased.

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QuestionIf the price level in the economy and the nominal wages both doubled, then the real wages would:Answer also double.

increase by one half. remain unchanged. decrease by one half.

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QuestionReal GDP is the same asAnswer current dollar GDP.

inflation adjusted GDP. nominal GDP. value added GDP.

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QuestionNominal GDP is:Answer the inflation adjusted GDP.

the real GDP minus depreciation. the current dollar GDP. the constant dollar GDP.

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QuestionThe government economists have adopted a new method of calculating the change in real GDP known as ________, which uses the average between the GDP growth rate calculated using an early base year and the GDP growth rate calculated using a late base year.Answer cost indexation method.

straight line depreciation method. chain-linking method. fixed base year method.

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QuestionAssume that in the base year (2008), a country's nominal GDP is 10,000 billion dollars. The country has been experiencing inflation at a rate of 5% each year since the year 2003. Based on this information, the real GDP of 2008 is equal to:Answer $10,500 billion.

$11,025 billion. $10,000 billion. $9,500 billion.

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QuestionA country's living standard is best measured by the:Answer per capita nominal GDP.

real GDP. nominal GDP. per capita real GDP.

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QuestionEconomists frequently use GDP per capita to better reflect:Answer the impact of prices on GDP.

differences in living standards across countries. people who are employed. people who are both employed and unemployed.

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QuestionGDP per capita is:Answer a perfect measure of a country's standard of living.

the only way to measure living standards among different countries. an incomplete measure of a country's standard of living. used by the U.N. to compare nations based on measures of welfare.

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QuestionThe aggregate price level is:Answer the average price of shares on the stock market.

the average price of commodities. the overall level of prices in the economy. the average rate of inflation.

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QuestionInflation is when there is:Answer a rising aggregate price level.

an expansion of output. a rise in wages. a rise in the unemployment rate.

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QuestionDeflation is when there is:Answer a decrease in unemployment.

a decreasing aggregate price level. a decline in wages. a recession.

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QuestionA price index:Answer always includes a base year.

measures the cost of purchasing a market basket of output across different years. is normalized to 100 for the base year. always includes a base year, measures the cost of purchasing a market basket of output across different years and is normalized to 100 for the base year.

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QuestionIn a market basket of goods:Answer the quantities stay constant and the prices change.

the quantities change and the prices are held constant. both the prices and the quantities are held constant. both the prices and the quantities change.

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QuestionUse this scenario to answer questions 174175.Scenario: Price IndexSuppose that in the base period a college student buys 20 gallons of gasoline at $2.00 per gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie ticket is $7.50.Reference: Ref 7-13

(Scenario: Price Index) The price index for the second month is:Answer 94.

106.4. 100. impossible to determine without more information.

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QuestionUse this scenario to answer questions 174175.Scenario: Price IndexSuppose that in the base period a college student buys 20 gallons of gasoline at $2.00 per gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie ticket is $7.50.

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Reference: Ref 7-13

(Scenario: Price Index) The change in prices for the month is:Answer 7.6%.

94%. 6.4%.

6%.

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QuestionIn the country of Sildavia, a market basket of goods and services cost $130 in 2007, $140 in 2008, and $160 in 2009. Based on this information and considering 2007 as the base year, the price index in 2009 was:Answer 100.

107.69. 123.07. 130.

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QuestionIn the country of Sildavia, a market basket of goods and services cost $130 in 2003, $140 in 2004, and $160 in 2005. Based on this information and considering 2003 as the base year, inflation from 2003 to 2005 was:Answer 7.14%.

7.69%. 14.28%. 23.07%.

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QuestionThe ______ is the most widely used measure of inflation in the United States.Answer producer price index

consumer price index GDP deflator national income account

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QuestionTable: Market Basket of School Supplies

Reference: Ref 7-14

(Table: Market Basket of School Supplies) The accompanying table shows the prices of three common school supplies in 2008 and 2009, and the quantities of each school supply that consumers bought in 2008, the base year. If we were to construct a school supply index (SSI) in 2009, it would be equal to:Answer 81.8

100 122.2 112,500

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QuestionTable: Market Basket of School Supplies

Reference: Ref 7-14

(Table: Market Basket of School Supplies) The accompanying table shows the prices of three common school supplies in 2008 and 2009, and the quantities of each school supply that consumers bought in 2008, the base year. If we were to construct a school supply index (SSI) to measure the rate at which average school supply prices have changed, we would find an inflation rate of:Answer 22%

122% 82% 18%

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QuestionIf the cost of a market basket is $200 in Year 1 and $230 in Year 2, the price index for Year 2 with a Year 1 base is:Answer 100.

115.

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130. 200.

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QuestionIf the cost of a market basket is $150 in Year 1 and $200 in Year 2, the price index for Year 1 with a Year 2 base is:Answer 75.

100. 133. 150.

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Reference: Ref 7-15

(Table: Price and Output Data) The value of Year 3's output in nominal dollars is:Answer $5.

$5.20. $20. $36.

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Reference: Ref 7-15

(Table: Price and Output Data) The value of Year 4's output in real dollars is:Answer $5.20.

$6. $30. $36.

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Reference: Ref 7-15

(Table: Price and Output Data) The price index for Year 2 is:Answer $4.

$12. $60. $80.

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Reference: Ref 7-15

Page 30 of 45

(Table: Price and Output Data) The price index for Year 4 is:Answer $80.

$120. $0. $6.

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QuestionSuppose that the market basket for the University Student Price Index (USPI) consists of 5 textbooks and 100 gallons of gasoline. In 2007, which is the base year for this index, textbooks cost $50 each and gas costs $1.00 per gallon. Suppose that in 2008, textbooks cost $80 each and gasoline costs $3.00 per gallon. Then, the USPI for 2008 is:Answer 100.

150. 200. 250.

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QuestionSuppose that the market basket for the University Student Price Index (USPI) consists of 4 textbooks and 100 gallons of gasoline. In 2007, which is the base year for this index, textbooks cost $50 each and gas costs $1.00 per gallon. Suppose that in 2008, textbooks still cost $50 each and gasoline costs $4.00 per gallon. Then, the USPI for 2008 is:Answer 250.

200. 150. 100.

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QuestionThe inflation or deflation rate is:Answer the change in a price index divided by the initial value of the index.

the change in a price index divided by the new index number. the difference between the initial price index number and the new price index number. computed by dividing the old price index number by the new price index number.

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QuestionInflation can be measured by:Answer the percentage change in the CPI.

the absolute change in the CPI. the absolute change in the GDP deflator. the percentage change in GDP.

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QuestionIf the CPI is 120 in Year 1 and 150 in Year 2, then the rate of inflation from Year 1 to Year 2 is _____.Answer 10%

20% 25% 50%

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QuestionTable: The Consumer Price Index

Reference: Ref 7-16

(Table: The Consumer Price Index) The approximate rate of inflation in Year 3 is _____ percent.Answer 5

10 19 20

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Reference: Ref 7-16

(Table: The Consumer Price Index) The approximate rate of inflation in Year 5 is _____ percent.Answer 5

10 19 20

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Reference: Ref 7-16

(Table: The Consumer Price Index) The approximate rate of inflation in Year 2 is _____.Answer 10%

19% 20% 25%

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QuestionIf the consumer price index changes from 120 to 125 between December 2007 and December 2008, the:Answer inflation rate for 2008 is 4.2%.

inflation rate for 2008 is 5%. deflation rate for 2008 is 5%. deflation rate for 2008 is 4.2%.

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QuestionIf a price index in Year 1 is 146 and in Year 2 is 163, the rate of inflation between Year 1 and Year 2 is _____.Answer 8.2%

10.43% 11.64% 15.0%

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QuestionIf the consumer price index is 180 in Year 1 and 190 in Year 2, the inflation rate between Year 1 and Year 2 is about ________.Answer 5.26%

5.56% 6.5% 10%

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QuestionAssume that the Consumer Price Index (CPI) for 2007 was 72.6 and that the CPI was 82.4 in 2008. What was the inflation rate between the two years?Answer 0.88%

1.13% 11.9% 13.5%

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1.04% 3.56%

3.70%

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5.40% 6.70% 3.20%

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QuestionIf the Consumer Price Index (CPI) for 2007 was 148.3 and 152.5 in 2008, what was the inflation rate between the two years?Answer 0.97%

2.83% 4.20% 9.72%

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QuestionIf the Consumer Price Index (CPI) for 2007 was 160.6 and 163.1 in 2008, what was the inflation rate between the two years?Answer 0.25%

1.56% 2.59% 5.00%

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QuestionThe consumer price index reflects the:Answer changes in the prices of goods and services typically purchased by consumers.

level of prices for intermediate goods and services purchased by business. level of prices for raw materials. prices of all goods and services computed from the ratio of nominal GDP to real GDP.

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QuestionWhich of the following is not true concerning the consumer price index? The consumer price index:Answer reflects changes in the prices of goods typically purchased by consumers.

contains thousands of goods and services. is calculated by the Bureau of Labor Statistics. changes only in the base year, every 5-7 years.

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QuestionIn the consumer price index of the United States:Answer the current cost of a basket of goods is compared to the base-period cost of the same basket of goods.

calculation of the base-period index is always equal to 100. the base period is 19821984. the current cost of a basket of goods is compared to the base-period cost of the same basket of goods, the calculation of the base-period index is always equal to 100, and the base period is 1982-1984.

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QuestionThe CPI is used for calculating payments from the U.S. government to individuals. To the extent it is biased upward, this index:Answer leads to lower benefits than would be the case if it weren't biased upward.

raises government expenditures. lowers government expenditures. leads to lower benefits than would be the case if it weren't biased upward and raises government expenditures.

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Page 33 of 45

Reference: Ref 7-17

(Table: Real and Nominal Output) The price index in Year 1, using Year 3 as the base period, is equal to:Answer 25.

50. 100. 150.

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Reference: Ref 7-17

(Table: Real and Nominal Output) The price index in Year 1, using Year 4 as the base period, is equal to:Answer 25.

50. 100. 150.

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QuestionYou read in the newspaper that the CPI in 2008 was 120, you will conclude that a typical market basket in 2008 would have costAnswer 20 percent more than the same market basket purchased in 2007.

120 percent more than the same market basket purchased in 2007. 20 percent more than the same market basket purchased in the base year. 120 percent more than the same market basket purchased in the base year.

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QuestionTable: Price Index

Reference: Ref 7-18

(Table: Price Index) Consider the information in table provided. Which year is most likely to be the base year?Answer 2006

2008 2007 2005

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QuestionTable: Price Index

Reference: Ref 7-18

(Table: Price Index) Consider the information in table provided. What is the inflation rate between the years 2007 and 2008?Answer 6.8%

4% 1%

6%

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QuestionWhich one of the following price indices measures the cost of living?Answer producer price index

wholesale price index consumer price index GDP deflator

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QuestionThe GDP deflator is equal to:Answer nominal GDP/real GDP x 100

real GDP/nominal GDP x 100 real GDP x nominal GDP x 100 [(real GDP x nominal GDP) / real GDP] x 100

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QuestionTable: GDP II

Reference: Ref 7-19

(Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2007.Answer 111

104 90 96

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QuestionTable: GDP II

Reference: Ref 7-19

(Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2008.Answer 111

104 90 96

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QuestionTable: CPI

Reference: Ref 7-20

(Table: CPI) Suppose the economy only produces three goods: bread, laptops, and movies. Calculate the CPI of 2008, using 2004 as the base year.Answer 81.9

100 75.8 95

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QuestionTable: CPI II

Reference: Ref 7-21

(Table: CPI II) Calculate by how much the prices changed between 2007 and 2008.Answer Prices fell by 5%.

Prices fell by 4%. Prices increased by 4%. Prices increased by 5%.

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QuestionMany economists believe that the CPI overstates inflation because:Answer innovation forces consumers to pay more for most goods and services.

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the Bureau of Labor Statistics collects data on the prices of only a few goods and services. the CPI market basket doesn't reflect the fact that consumers shift consumption away from more expensive goods. people use it to bargain for wage increases.

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QuestionWhich of the following statistics is used to measure changes in the prices that firms pay for goods and services?Answer Producer Price Index

Consumer Price Index GDP Deflator Cost of Living Index

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QuestionWhich of the following is true concerning the Producer Price Index?Answer The Producer Price Index is just another term for the GDP deflator.

Changes in the Producer Price Index generally follow changes in the Consumer Price Index. The Producer Price Index measures the cost of a basket of goods typically purchased by producers. The Producer Price Index shows how the cost of all purchases by urban families changes.

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QuestionThe major difference between the Consumer Price Index and the Producer Price Index is that:Answer the PPI is based on retail prices and CPI is based on wholesale prices.

the PPI measures the cost of living of self-employed workers and the CPI measures the cost of living of salaried workers. the PPI generally registers a higher rate of inflation than the CPI. the PPI is based on the cost of a basket typically purchased by producers, while the CPI is based on the cost of a basket typically purchased by consumers.

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QuestionThe PPI is often regarded as a warning sign of inflation:Answer because commodity producers are relatively quick to raise prices.

because producers are more likely to have monopoly control over prices. because consumers have to pay the prices charged. because commodity producers can sell whatever they want at higher prices.

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QuestionThe purpose of indexing Social Security payments to the CPI is to:Answer increase corporate profits.

justify continued government funding of the Bureau of Labor Statistics. avoid the privatization of Social Security. maintain the purchasing power of retirees.

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Question 224 True/False 0 points Modify Remove

QuestionThe government returns part of the money it raises from taxes in the form of government transfers.Answer True

False

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QuestionWhen measuring GDP as spending on domestically produced final goods and services, spending on inputs like steel in manufacturing a car is counted in GDP, but spending on a new factory in which the cars are produced is NOT counted in GDP.Answer True

False

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QuestionWhen Disney builds a new amusement park in the United States, it is counted as part of GDP.Answer True

False

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QuestionFinal goods and services are sold to the final or end user.Answer

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TrueFalse

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QuestionMost of the value added in GDP in the United States is added by businesses rather than consumers.Answer True

False

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QuestionThe largest spending category in GDP is consumption.Answer True

False

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QuestionIf the United States exports $500 of goods and services and imports $700 of goods and services, net exports are $1200.Answer True

False

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QuestionThe national income accounts were developed in the early 1970s by Robert McNamara to document spending on the Vietnam War.Answer True

False

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QuestionSteel manufactured for the purpose of producing a car is not counted in aggregate output, but the car that results is counted.Answer True

False

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QuestionOvercounting of GDP can be avoided by including both final and intermediate production.Answer True

False

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QuestionRenting a car to go on a vacation will result in more GDP than if you used your own car.Answer True

False

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QuestionGDP per capita measures the value of all intermediate goods and services produced in the economy.Answer True

False

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QuestionU.S. GDP was $5,803 billion in 1994 and $11,734 billion in 2008, so we can conclude that aggregate output roughly doubled over the fourteen year period in the United States.Answer True

False

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QuestionChain-linking is a method used to measure the change in real GDP.Answer True

False

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QuestionThe price index in the base year is normalized so that it equals 100 in the base year.Answer True

False

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QuestionIf the price index in year 1 is 110 and the price index in year 2 is 115, then the inflation rate is exactly 5% from year 1 to year 2.Answer True

False

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QuestionThe CPI is intended to measure the cost of all goods purchased in the economy over time.Answer True

False

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QuestionThe inflation rate is measured as the percentage change per year in a price index.Answer True

False

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QuestionThe producer price index and the consumer price index are both examples of price indices.Answer True

False

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QuestionThe producer price index usually responds to price changes more quickly than the consumer price index (CPI).Answer True

False

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QuestionThe GDP deflator is another name for the consumer price index (CPI).Answer True

False

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QuestionIncome tax brackets are indexed to the consumer price index (CPI).Answer True

False

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QuestionIf the CPI increases from 125 to 130 in one year, the rate of inflation is 5 percent.Answer True

False

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QuestionEconomists generally agree that the CPI understates the rate of inflation.Answer True

False

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QuestionThe CPI does not fully account for quality changes in goods and services, and does not, therefore, indicate a correct measure of inflation.Answer True

False

Page 38 of 45

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QuestionBecause consumers tend to look for the cheapest substitute available, the CPI (which tracks only certain products) is thought to be overstated.Answer True

False

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Question 250 Essay 0 points Modify Remove

QuestionFor each of the following transactions, explain why, or why not, they would be counted in the GDP of the United States.a. Japanese auto producer Honda builds a factory in Indiana.b. You buy a new pair of pants produced at a factory in Honduras.c. You mow your uncle's yard and he gives you $10 for a job well done.Answer a. Yes. If a factory is being built in America, it would count as investment spending in the U.S. GDP. It doesn't matter if the

builder is headquartered in Japan or any other nation.b. No. You did purchase the pants in the U.S., which does count as consumption spending, but this garment was produced in a foreign country. Thus it would be deducted from U.S. GDP as an import.c. No. In an accountant's perfect world, this sort of cash under the table transaction would count, because you have produced a service and received payment for it. However you are unlikely to report this income on your tax returns and your uncle is unlikely to demand a receipt for his payment. Official GDP tabulations would miss almost all of these smaller transactions.

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QuestionFor each of the following transactions, explain why, or why not, they would be counted in the GDP of the United States.a. American auto producer Ford builds a factory in Alberta, Canada.b. You buy a blueberry muffin at your local coffee shop.c. A Ford dealership in Ohio has 15 unsold new 2008 model cars at the end of 2008.Answer a. No. This is investment spending, but not in America, so it does not count in U.S. GDP.

b. Yes. This is consumer spending.c. Yes. These unsold cars would be counted as unsold inventory in investment spending.

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QuestionA single woman is a busy attorney who is too busy to take care of her yard so she hires a local firm to perform monthly lawn ser

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Macroeconomics Ch 7