8. Which of the following is correct for an economy?

C. Income always equals production.

A.Income is greater than production.

B.Production is greater than income.

D.Income equals production only when saving is zero.

9. Robert works as a lawyer.

D.GDP computations should include either his income or his production, but not both.

A.GDP computations should be made using his income from providing legal services, not his production of legal services.

B.GDP computations should be made using his production, not his income from providing legal services.

C. GDP computations should include both his income and his production.

A.income and production must both rise.

B.income and production must both fall.

C. income must rise, but production may rise or fall.

D.production must rise, but income may rise or fall.

11. In a simple circular-flflow diagram total income and total expenditure are

C. always equal because every transaction has a buyer and a seller.

A.seldom equal because of the dynamic changes which occur in an economy.

B.equal only when all goods and services produced are solD.

D.always equal because of accounting rules.

12. In a simple circular-flflow diagram, total income and total expenditures in an economy are

C. equal because every transaction has a buyer and a seller.

A.equal because firms are ultimately owned by households.

B.equal only if there is no saving.

D.never equal because some people’s income is not for production.

13. Firms use the money they get from a sale for

D.All of the above are correct.

14. The simple circular-flow diagram illustrates that

A.production generates income so that income and production are the same.

B.the economy’s income exceeds its production.

C. the production of an economy exceeds its income.

D.None of the above are necessarily correct.

15. In an economy consisting of only households and fifirms, GDP can be computed by

A.adding up the total expenditures of households.

B.adding up the total income paid by firms.

16. Production equals income because

B.for every sale there is a buyer and a seller.

A.by law firms must pay out all their revenue as income to someone.

C. because ultimately firms are owned by households.

17. Which of the following is the correct definition of GDP?

C. the market value of all final goods and services produced within a country

A.the market value of all goods produced within a country

B.the market value of all final goods and services produced by the citizens of a country

18. To compute GDP we

D.sum the market values of final goods and services.

A.simply sum the number of final goods and services.

B.sum the cost of producing final goods and services.

C. use weights determined by a survey regarding how much people value different sorts of goods and services to compute GDP as a weighted average.

19. In order to include many difffferent products in an aggregate measure, GDP is computed using

A.values of goods based on surveys of consumers.

C. primarily costs of production.

D.weights that are computed by how much of a particular good is produced relative to total output.

20. GDP is computed using market prices as the value of fifinal goods and services because

C. market prices reflflect the value of goods and services.

A.market prices don’t change much, so it is easy to make comparisons between years.

B.if market prices are out of line with how people value goods, the government sets ceilings and flfloors on them.

D.None of the above are correct; the government does not use market prices to compute GDP.

21. Which of the following is not included in GDP?

A.unpaid cleaning and maintenance of houses

B.services such as those provided by lawyers and hair stylists

C. the estimated rental value of owner-occupied housing

D.production of foreign citizens living in the United States

22. The value of housing service provided by the economy’s stock of houses is

D.counted and is based on an estimate of its rental value.

A.not included in GDP since it is not sold on the market.

B.counted and is valued as the mortgage payment made on the house.

C. counted and uses only the purchase price of the house in the year it is solD.

23. Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments.

A.The rent was included in GDP; the purchases of the condominiums are not.

B.The rent was included in GDP, and so is the purchase of the condominiums.

C. The rent was not included in GDP; the purchases of the condominiums are.

D.Neither the rent of the apartments nor the purchases of the condominium are included in GDP.

24. Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments. Suppose that an estimate of the value of the condominium owners’ housing services is now the same as their former rent.

D.GDP is unaffffected because previously rent was included in GDP, and now it is replaced by the estimate of the value of housing services.

C. GDP is unaffffected because neither the rent nor the estimate of the value of housing services is included in GDP.

25. Which of the following non-market goods or services is included as an estimate in U.S. GDP?

C. the estimated rental value of owner-occupied homes

A.the value of unpaid housework

B.the value of vegetables that people grow in their gardens

26. Over the last few decades Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself,

C. did not affffect measured GDP.

D.affffected measured GDP only to the extent that people eat more at restaurants than at home.

27. Over time people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example people eat at restaurants relatively more and prepare their own meals at home relatively less. By itself this change would

B.not make any change in GDP over time.

D.change GDP, but in an uncertain direction.

28. Ralph pays someone to mow his lawn. Norton mows his own lawn.

A.Only what Ralph pays to have his lawn mowed is included in GDP.

B.What Ralph pays to have his lawn mowed and the estimated value to Norton of mowing his own lawn are both included in GDP.

C. Neither what Ralph pays nor the estimated value of Norton’s mowing is included in GDP.

D.The answer depends on what Norton reports to survey takers.

29. Jim is a chef at a restaurant. Sally prepared her own meals during the fifirst quarter of 2002, and then ate at Jim’s restaurant every day in the second quarter of 2002. Sally’s change of habit

C. raises GDP only if the restaurant meals are more expensive than the estimated value of Sally’s meals.

30. If Susan decides to change the oil in her car herself instead of having Speedy Lube change the oil for her GDP

C. will be unaffffected because the same service is produced in either case.

D.will be unaffffected because car maintenance is not included in GDP.

31. A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. This move

C. doesn’t change GDP because gambling is never included in GDP.

D.doesn’t change GDP because in either case his income is includeD.

32. A professional gambler moves from a state where gambling is legal to a state where gambling is illegal. This move

C. doesn’t change GDP because gambling is never included in GDP.

D.doesn’t change GDP because in either case his income is includeD.

33. If a state made an illegal activity such as gambling or prostitution legal, then other things the same GDP

C. doesn’t change because both legal and illegal production are included in GDP.

D.doesn’t change because these activities are never included in GDP.

34. If a state legalized gambling and then reversed its decision and made gambling illegal, then other things the same GDP

C. doesn’t change because both legal and illegal production are included in GDP.

D.doesn’t change because gambling is never included in GDP.

35. Roommates Grace and Kelly are sharing household chores and think they have an even exchange. Other things the same, if instead they paid each other for the chores the other did GDP would

C. be unaffffected because paid or not, household chores are not included in GDP.

D.be unaffffected because paid or not, household chores are included in GDP.

36. Which of the following is correct?

D.The value of intermediate goods are not included in GDP.

A.The value of all intermediate goods and fifinal goods are included in GDP.

B.The value of intermediate goods are included in GDP only if they were produced in the previous year.

C. The value of intermediate goods are included in GDP only if they are purchased by fifirms rather than households.

C. excludes the value of intermediate goods because their value is already counted in the value of fifinal goods.

A.includes the value of intermediate goods so we can get a measure of sales.

B.excludes the value of intermediate goods because they are too difficult to measure.

38. The total sales of all fifirms in the economy for a year

B.is larger than GDP for the year.

C. is smaller than GDP for the year.

B.counted as an intermediate good only if they are used to produce another good like wine.

A.always counted as an intermediate gooD.

C. counted as an intermediate good only if they are consumeD.

D.counted as an intermediate good whether they are used to produce another good or consumeD.

A.always counted as an intermediate gooD.

B.counted as an intermediate good if it is used by a company to make breaD.

C. counted as a fifinal good if it is used by a consumer who bakes bread for his own consumption.

C. counted as a fifinal good if a consumer uses it to run a lawnmower to mow her yarD.

A.always considered an intermediate gooD.

B.counted as a fifinal good if a company uses it to provide transportation services.

42. Goods that go into inventory and are not sold during the current period are

C. included in current period GDP as inventory investment.

A.counted as intermediate goods and so are not included in current period GDP.

B.counted in current GDP only if the fifirm that produced them sells them to another fifirm.

D.included in current period GDP as consumption.

43. The local Chevrolet dealership has an increase in inventory of 25 cars in 2003. In 2004 it sells all 25 cars.

A.The value of increased inventory will be counted as part of GDP in 2003, but the value of the cars sold in 2004 will not cause GDP to increase.

B.The value of the increased inventory will not affffect 2003 GDP, but will be included in 2004 GDP.

C. The value of the increased inventory will be counted as 2003 GDP and the value of the cars sold in 2004 will increase 2004 GDP.

44. A movie company makes 500,000 DVDs of one of its latest releases. It sells 300,000 of them before the end of the second quarter, and holds the others in its warehouse.

C. The DVDs will be counted as a change in inventory in the second quarter and so will be included in second-quarter GDP.

A.Since the DVDs will eventually be bought by consumers, they are included as consumption in the second quarter.

B.Since the DVDs were not purchased this quarter, they will be counted as an increase in third-quarter GDP.

D.The DVDs will be counted as a change in inventory in the second quarter, and when sold in the third quarter will raise GDP.

45. George buys and lives in a newly constructed home he paid $200,000 for in 2003. He sells the house in 2004 for $225,0000.

C. The 2004 sale does not increase 2004 GDP and does nothing to 2003 GDP.

A.The 2004 sale increases 2004 GDP by $225,000 and does nothing to 2003 GDP.

B.The 2004 sale increases 2004 GDP by $25,000 and does nothing to 2003 GDP.

D.The 2004 sale increases 2004 GDP by $225,000 and 2003 GDP is revised upward by $25,000.

48. Anna, a U.S. citizen, works only in Germany. The value added to production from her employment is included

C. in both German and U.S. GDP.

D.in neither German nor U.S. GDP.

50. An American company owns a fast food restaurant in RomaniA. The value of goods and services it produces is included

C. in Romanian GDP, but not U.S. GDP.

A.in both Romanian and U.S. GDP.

B.partly in Romanian GDP and partly in U.S. GDP.

D.in U.S. GDP, but not Romanian GDP.

51. Which of the following is included in GDP?

C. the sale of services such as visits to a doctor

D.All of the above are correct.

52. Which of the following is included in GDP?

B.the estimated rental value of owner occupied housing

C. unpaid production of goods and services at home

D.All of the above are correct.

53. Which of the following is included in U.S. GDP?

A.goods produced by foreign citizens working in the United States

B.the difffference in the price of the sale of an existing home and its original purchase price

54. Which of the following is counted in U.S. GDP?

A.final goods and services purchased by the government

B.both the peaches used by a bakery to make peach pies and the peach pies

C. goods and services produced by U.S. citizens working in foreign countries

Chapter 23 (A)

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D.the trade deficit

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Chapter 23 (A)

62 questions

1. Macroeconomists study

2. Which of the following headlines would be more closely related to what microeconomists study than what macroeconomists study?

3. Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

4. Macroeconomics includes the study of topics such as

5. The goal of macroeconomics is

6. The basic tools of supply and demand are

7. Which of the following statistics is the best single measure of an economy’s well-being?

8. Which of the following is correct for an economy?

9. Robert works as a lawyer.

10. If GDP rises,

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