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Chapter4

MeasuringGDPandEconomicGrowth
1GrossDomesticProduct
1) Grossdomesticproductisthetotal________producedwithinacountryinagiventimeperiod.
A) marketvalueofallfinalandintermediategoodsandservices
B) marketvalueofallgoodsandservices
C) amountoffinalandintermediategoodsandservices
D) marketvalueofallfinalgoodsandservices
Answer: D
Topic: GDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

2) Grossdomesticproduct
A) includesallthegoodsandnoneoftheservicesproducedinaneconomyinagiventime
period.
B) measuresthevalueoftheaggregateproductionofgoodsandservicesinacountryduring
agiventimeperiod.
C) measuresthevalueoflaborpaymentsgeneratedinaneconomyinagiventimeperiod.
D) isgenerallylessthanfederalexpenditureinanytimeperiod.
Answer: B
Topic: GDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

3) Grossdomesticproductisameasureofthetotalvalueofall
A) salesinaneconomyoveraperiodoftime.
B) consumerincomeinaneconomyoveraperiodoftime.
C) capitalaccumulationinaneconomyoveraperiodoftime.
D) finalgoodsandservicesproducedinaneconomyoveraperiodoftime.
Answer: D
Topic: GDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth493

4) Grossdomesticproduct(GDP)isthe________inagiventimeperiod.
A) valueofpersonalconsumptionexpenditures,grossprivatedomesticinvestment,and
federalgovernmentexpenditures
B) sumofwageandsalarycompensationofemployeesandcorporateprofits
C) valueofallfinalandintermediategoodsandservicesproducedbytheeconomyexcluding
thosegoodsexportedtoforeignnations
D) marketvalueoffinalgoodsandservicesproducedbytheeconomy
Answer: D
Topic: GDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

5) Grossdomesticproduct(GDP)measuresthe
A) numberoffinalgoodsandservicesproducedintheeconomyinagiventimeperiod.
B) numberoffinalgoodsandservicessoldintheeconomyinagiventimeperiod.
C) marketvalueofoldandnewfinalgoodsandservicessoldintheeconomyinagiventime
period.
D) marketvalueoffinalgoodsandservicesproducedintheeconomyinagiventimeperiod.
Answer: D
Topic: GDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

6) GDPisdefinedasthemarketvalueofall________inagiventimeperiod.
A) finalgoodsproducedinacountry
B) finalgoodsandservicesproducedbycitizensofaparticularcountryregardlessofwhere
intheworldtheyarelocated
C) finalgoodsandservicesproducedinacountrybyonlythecitizensofthecountry
D) finalgoodsandservicesproducedinacountry
Answer: D
Topic: GDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

7) InthedefinitionofGDP,marketvaluerefersto
A) valuingproductioninproductionunits.
B) notcountingintermediateproducts.
C) valuingproductionaccordingtothemarketprice.
D) whentheproductiontookplace.
Answer: C
Topic: MarketValue
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

494ParkinMacroeconomics,TenthEdition

8) IntheUnitedStates,GDPistypicallymeasured
A) monthly.
B) quarterly.
C) daily.
D) weekly.
Answer: B
Topic: TimePeriod
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

9) IfNike,anAmericancorporation,producessneakersinThailandthiswould
A) countaspartofU.S.GDPsinceitisaU.S.corporation.
B) countforbothThailandsGDPandU.S.GDP.
C) addtoThailandsGDPbutnottoU.S.GDP.
D) addtoneitherU.S.GDPnorThailandsGDP.
Answer: C
Topic: Production
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

10) IfFritoLay,anAmericansnackcompany,opensanewmanufacturingfacilityinMexicoand
producessnackswhicharedistributedinSouthAmerica,thenMexicosGDP________andU.S.
GDP________.
A) increases;doesnotchange
B) doesnotchange;increases
C) increases;decreases
D) increases;increases
Answer: A
Topic: Production
Skill: Recognition
Questionhistory: New10thedition
AACSB: ReflectiveThinking

11) ThewordfinalinthedefinitionofGDPrefersto
A) notcountingintermediategoodsorservices.
B) thetimeperiodwhenproductiontookplace.
C) valuingproductionatmarketprices.
D) countingtheintermediategoodsandservicesusedtoproduceGDP.
Answer: A
Topic: FinalGood
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth495

12) Aloafofbreadpurchasedbyoneofyourinstructorswouldbebestdescribedas
A) anintermediategood.
B) afinancialasset.
C) ausedgood.
D) afinalgood.
Answer: D
Topic: FinalGood
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

13) Whichofthefollowingisafinalgood?
A) thememorychipsinyournewsmartphone
B) ashareofIBMstock
C) flourpurchasedatthestoretobakecookies
D) flourusedbythebakerytobakecookies
Answer: C
Topic: FinalGood
Skill: Recognition
Questionhistory: New10thedition
AACSB: ReflectiveThinking

14) In2011,Ozziepurchaseda2008FordEscortfromhisneighborforhisson,purchaseda2007
oneownerCamryfromLarchmontToyotaforhiswife,boughta2011newFordforhimself,
andsoldhis2000DodgeCaravantohisteenagenephew.Which,ifany,ofthesetransactions
willbeincludedinGDPin2011?
A) allfourtransactions
B) allthreepurchasesbutnotthesale
C) thepurchaseoftheFordandtheCaravan
D) onlythepurchaseoftheFord
Answer: D
Topic: FinalGood
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

15) Whichofthefollowingexpendituresassociatedwiththeproductionofanewhigh -performance


SUVwillbedirectlyincludedinGDP?
A) thesaleofbondstofinancetheconstructionoftheassemblyplant
B) thepurchaseofusedweldingrobotstoassembletovehicles
C) thepurchaseofnewtirestobeinstalledonthenewvehicles
D) thepurchaseofnewmachinetoolstomanufacturetheengines
Answer: D
Topic: FinalGood
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

496ParkinMacroeconomics,TenthEdition

16) IntermediategoodsareexcludedfromGDPbecause
A) theirinclusionwouldinvolvedoublecounting.
B) theyrepresentgoodsthathaveneverbeenpurchasedsotheycannotbecounted.
C) theirinclusionwouldunderstateGDP
D) thepremiseofthequestionisincorrectbecauseintermediategoodsaredirectlyincludedin
calculatingGDP.
Answer: A
Topic: IntermediateGoodsandServices
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

17) Atonofcoalpurchasedbyyourlocalutilitytoburntomakeelectricitywouldbebestdescribed
as
A) anintermediategood.
B) afinancialasset.
C) ausedgood.
D) afinalproduct.
Answer: A
Topic: IntermediateGoodsandServices
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

18) Whichofthefollowingexpendituresisforanintermediategood?
A) Thegovernmentbuysnewtiresforitsmilitaryvehicles.
B) AU.S.tirefirmsellsnewtirestoCanada.
C) GeneralMotorsbuysnewtirestoputonthecarsitsbuilding.
D) Youbuynewtiresforyourusedcar.
Answer: C
Topic: IntermediateGoodsandServices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

19) GDPdoesnotdirectlyincludeintermediategoodsbecause
A) intermediategoodsarenotvaluable.
B) intermediategoodsarenotusefultoconsumers.
C) thatwouldcounttheintermediategoodstwice.
D) thatwouldunderstatethetruesizeofGDP.
Answer: C
Topic: IntermediateGoodsandServices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth497

20) ThecalculationofthefinalgoodsandservicessoldinaneconomywouldNOTinclude
A) thepurchaseofalawnmowerbyahousehold.
B) GeneralMotorspurchasesoftiresfornewautomobiles.
C) FordMotorCompanyspurchaseofanewindustrialrobottobeusedtoproducecars.
D) thepurchaseofaservicebyahousehold.
Answer: B
Topic: IntermediateGoodsandServices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

21) IncomputingGDP,itisessentialto
A) avoiddoublecounting.
B) includegovernmenttransferpayments.
C) includegovernmenttaxrevenues.
D) countallintermediateproductsdirectlyastheyareproduced.
Answer: A
Topic: IntermediateGoodsandServices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

22) Doublecounting(countingthesamethingtwice)inGDPaccountingisavoidedbynotincluding
A) netexports.
B) intermediategoods.
C) illegalactivities.
D) depreciation.
Answer: B
Topic: IntermediateGoodsandServices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

23) GDPcountsonlyfinalgoodsandservicesbecausethis
A) methodavoidsincludinganygoodsthatareproducedthisyearandsoldnextyear.
B) methodavoidsdoublecountingofgoodsgoingthroughseveralstagesofproduction.
C) amountcanbemoreeasilydeterminedinthemarketplace.
D) methodavoidsunderstatingthevalueofGDPproducedduringagivenyear.
Answer: B
Topic: FinalGoodsandIntermediateGoods
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

498ParkinMacroeconomics,TenthEdition

24) Thecircularflowmodelshowsthatconsumergoodsandservicesproducedbybusinessfirms
aresoldinthe
A) goodsmarket.
B) factormarket.
C) labormarket.
D) financialmarket.
Answer: A
Topic: CircularFlow
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

25) Thefactormarketcanbestbedescribedaswhere
A) householdsbuygoodsandservices.
B) firmsbuygoodsandservices.
C) firmsbuytheservicesoflabor,landandcapital.
D) governmentssellgoodsandservices.
Answer: C
Topic: CircularFlow
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

26) Inthecircularflowofincome
A) householdsdemandgoodsandservicesthataresuppliedbyfirms,andthefirmsdemand
factorsthataresuppliedbyintermediatefirms.
B) householdsdemandgoodsandservicesthataresuppliedbyfirms,whilesupplying
factorsthataredemandedbyfirms.
C) householdssellgoodsandserviceswhilefirmssellfactors.
D) householdsbuygoodsandserviceswhilefirmssellgoodsandservices.Firmsobtainlabor
fromhouseholds,capitalfromgovernment,andrawmaterialsfromotherfirms.
Answer: B
Topic: CircularFlow
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

27) Thecircularflowshowsthatthehouseholdsectorearnsitsincomeby
A) sellingfactorsofproduction.
B) buyingfactorsofproduction.
C) sellinggoodsandservices.
D) sellingfinancialassets.
Answer: A
Topic: CircularFlow
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth499

28) Thecircularflowofincomeshowsthat
A) householdstransactonlyinthegoodsmarket.
B) governmentspurchasegoodsandservices.
C) firmsgenerallyarethedemandersinthegoodsmarketsandsuppliersinthefactor
markets.
D) Noneoftheaboveanswersiscorrect.
Answer: B
Topic: CircularFlow
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

29) Whichofthefollowingistrueregardingthecircularflowdiagram?
I.
Aggregateincomeistheflowofincomeearnedbyfirms.
II. Retainedearningsareconsideredincomeearnedbyfirmsratherthanpartofhouseholds
income.
III. Thegovernment,households,andfirmsallhavetransactionsinthegoodsmarket.
A) Ionly
B) IandII
C) IandIII
D) IIIonly
Answer: D
Topic: CircularFlow
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

30) Ifwecomparethefoursourcesofspendingintheeconomyweseethat
A) householdconsumptionisthesmallest.
B) governmentexpenditureisthelargest.
C) businessinvestmentisthelargest.
D) householdconsumptionisthelargest.
Answer: D
Topic: CircularFlow
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

31) Comparedtotheothersourcesofspending,netexportsis
A) largeandnegative.
B) smallandnegative.
C) largeandpositive.
D) smallandpositive.
Answer: B
Topic: CircularFlow
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

500ParkinMacroeconomics,TenthEdition

32) Thecircularflowdiagramshowsthat
A) theflowofpaymentstothefactorsusedtoproducegoodsandservicesexceedstheflowof
paymentsforfinalgoodsandservices.
B) goodsandfactormarketsareindependent.
C) thetotalamountofincomegeneratedbytheeconomyequalsthetotalpurchasesoffinal
goodsandservices.
D) consumptionexpenditureequalssaving.
Answer: C
Topic: CircularFlow
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

33) Thecircularflowdiagramshows
A) hownominalGDPisdistinctfromrealGDP.
B) howthepricesoffactorsaredetermined.
C) theeffectsofinflationinasimpleeconomy.
D) theflowsbetweendifferentsectorsoftheeconomy.
Answer: D
Topic: CircularFlows
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

34) Thecircularflowdiagramindicatesthat
A) householdsselltheservicesoffactorsofproductiontofirms.
B) firmsbuytheservicesoffactorsofproductionfromthegovernment.
C) householdssellgoodsandservicestothegovernment.
D) firmsbuygoodsandservicesfromhouseholds.
Answer: A
Topic: CircularFlows
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

35) Inthecircularflowmodelofaneconomy,households
A) receiveincomefrombuyersofgoodsandservices.
B) receiveincomefromthesaleoffactorsinthegoodsmarkets.
C) payfirmsfortheuseoftheirfactors.
D) receiveincomefromproducersfortheuseoffactorsinthefactormarkets.
Answer: D
Topic: CircularFlows
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth501

36) Inthecircularflowdiagram,aggregateexpenditureincludesthesumof
A) savingandinvestment.
B) consumptionandinvestment.
C) consumption,investment,andsaving.
D) incomeandsaving.
Answer: B
Topic: CircularFlow,AggregateExpenditures
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

37) Inthecircularflowofeconomicactivity
A) aggregateexpendituremeasuresthedollarvalueofpurchasesoffactors.
B) aggregateexpendituremeasuresthedollarvalueofpurchasesoffinalgoodsandservices.
C) aggregateincomemeasuresthedollarvalueoflaborresourcesonly.
D) aggregateexpenditureismeasuredasitmovesthroughthefinancialmarkets.
Answer: B
Topic: CircularFlow,AggregateExpenditures
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

38) Inthecircularflowdiagram,aggregateexpenditureincludes
A) consumptionexpenditure,saving,investmentandgovernmentexpenditure
B) consumptionexpenditure,saving,investmentandnetexports
C) consumptionexpenditure,investment,governmentexpenditureandnetexports
D) consumptionexpenditure,saving,governmentexpenditureandnetexports
Answer: C
Topic: CircularFlow,AggregateExpenditures
Skill: Recognition
Questionhistory: New10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

502ParkinMacroeconomics,TenthEdition

39) Intheabovefigure,flowBrepresents________.
A) householdpurchasesofgoodsandservices
B) householdborrowing
C) householdincome
D) firmspaymentsforlaborservices
Answer: A
Topic: CircularFlow
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

40) Intheabovefigure,flowBrepresentshouseholds________.
A) income
B) consumptionexpenditures
C) saving
D) investment
Answer: B
Topic: CircularFlow
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth503

41) Intheabovefigure,householdincomeisshownbyflow
A) A.
B) B.
C) C.
D) F.
Answer: A
Topic: CircularFlow
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

42) Intheabovefigure,consumptionexpenditureisshownbyflow
A) A.
B) B.
C) C.
D) F.
Answer: B
Topic: CircularFlow
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

43) Whichofthefollowingareequaltooneanother?
I. aggregateproduction
II. aggregateexpenditure
III. aggregateincome
A) IequalsII,butnotIII.
B) IequalsIII,butnotII.
C) IIequalsIII,butnotI.
D) IequalsIIequalsIII.
Answer: D
Topic: ExpenditureEqualsIncome
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

44) Choosethebeststatement.
A) GDPequalsaggregateexpenditureandequalsaggregateincome.
B) Anincreaseingovernmentpurchasesincreasesaggregateexpenditurebutdoesnot
changeGDP.
C) Anincreaseincompensationofemployeesincreasesaggregateincomebutdoesnot
changeGDP.
D) GDPalwaysequalsaggregateexpenditureandsometimesequalsaggregateincome.
Answer: A
Topic: ExpenditureEqualsIncome
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

504ParkinMacroeconomics,TenthEdition

45) Accordingtothecircularflowdiagram,thedollarvalueofanationsoutputisequalto
A) profits.
B) totalincome.
C) netincomeminustaxes.
D) wages.
Answer: B
Topic: ExpenditureEqualsIncome
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

46) Totaloutputandtotalincomeinthecircularflowmodel
A) aremeasuresoftheeconomyslevelofsavings.
B) includeonlyintermediategoods.
C) areequaltoeachother.
D) arerelatedbecausenationalincomeislessthannationalproduct.
Answer: C
Topic: ExpenditureEqualsIncome
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

47) Thecircularflowshowsthat
A) aggregateproductionequalsaggregateexpenditure.
B) aggregateexpenditureislessthanaggregateincome.
C) GDPequalsaggregateincome.
D) BothanswersAandCarecorrect.
Answer: D
Topic: ExpenditureEqualsIncome
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

48) Comparingaggregateexpenditureandaggregateincomesshowsthat
A) aggregateexpenditureisusuallygreaterthanaggregateincome.
B) aggregateincomeisusuallygreaterthanaggregateexpenditure.
C) theyareequal.
D) aggregateincomecannotequalaggregateexpenditureifwehaveanysavings.
Answer: C
Topic: ExpenditureEqualsIncome
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth505

49) Grossdomesticproduct(GDP)is
A) thevalueofallfinalgoodsandservicesproducedinacountryduringayear.
B) thesumofconsumptionexpenditure,investment,governmentexpenditureongoodsand
services,andnetexports.
C) thesumofcompensationofemployees,proprietorsincome,netinterest,rentalincome,
corporateprofits,depreciation,andindirectbusinesstaxesminussubsidies.
D) alloftheabove
Answer: D
Topic: ExpenditureEqualsIncome
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

50) Grossdomesticproductcanbecalculated
A) eitherbyvaluingthenationsoutputofgoodsandservicesorbyvaluingtheincome
generatedintheproductionprocess.
B) byaddingupthepersonalconsumptionofallmembersofthesociety.
C) byaddingupthevalueofallintermediategoodsusedintheeconomy.
D) byaddinguptheincometaxreturnsofallmembersofthesociety.
Answer: A
Topic: ExpenditureEqualsIncome
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

51) Grossdomesticproductisthe
A) valueofthefinalgoodsandservicesproducedinacountryduringaspecifictime.
B) totalamountthatbuyersspentonthefinalgoodsandservicesproducedinacountry
duringaspecifictime.
C) totalamountofincomeearnedinproducingthefinalgoodsandservicesinacountry
duringaspecifictime.
D) Alloftheaboveanswersarecorrect.
Answer: D
Topic: ExpenditureEqualsIncome
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

52) Whichofthefollowingiscorrect?
A) AggregateexpenditureequalsGDPbutislessthanaggregateincome.
B) AggregateincomeisgreaterthanGDPbutequaltoaggregateexpenditure.
C) AggregateincomeisgreaterthanaggregateexpenditurebutequaltoGDP.
D) Aggregateincome,aggregateexpenditureandGDPareallequal.
Answer: D
Topic: ExpenditureEqualsIncome
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

506ParkinMacroeconomics,TenthEdition

53) GDPequals
A) C+S+G+(X-M)
B) C+I+G+(X+M)
C) C+I+G+(X-M)
D) C+S+G+(X-M)
Answer: C
Topic: ExpenditureEqualsIncome
Skill: Recognition
Questionhistory: New10thedition
AACSB: ReflectiveThinking

54) Depreciationisdefinedasthe
A) decreaseinthestockofcapitalduetowearandtear.
B) increaseinthestockofcapitalduetoinvestmentbyfirms.
C) increaseinthestockofcapitalduetowearandtear.
D) decreaseinthestockofcapitalduetoinvestmentbyfirms.
Answer: A
Topic: Depreciation
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

55) SupposeMailBoxesEtc.buysanewcopierforitsstorefor$1000.Ayearlater,whenthefirm
wantstoupgradetoanewcopier,itfindsthattheoldcopierisonlyworth$750.Overtheyear
thecopierwasused,________hasoccurred.
A) replacementinvestment
B) grossinvestment
C) depreciation
D) netinvestment
Answer: C
Topic: Depreciation
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

56) Netinvestmentequals
A) capitalstockminusdepreciation.
B) grossinvestmentminusdepreciation.
C) thetotalquantityofplant,equipmentandbuildings.
D) grossinvestment/depreciation.
Answer: B
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth507

57) Whichofthefollowingrelationshipsiscorrect?
A) NetInvestment=GrossInvestment+ Depreciation
B) Consumptionexpenditure= NetInvestment- Depreciation
C) GrossInvestment=NetInvestment+ Depreciation
D) Depreciation=GrossInvestment- Consumptionexpenditure
Answer: C
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

58) Grossinvestmentequalsnetinvestmentplus
A) capital.
B) capitalgains.
C) depreciation.
D) dividendspaidtotheownersofthecompany.
Answer: C
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

59) Grossinvestmentisequalto
A) depreciationminusnetinvestment.
B) netinvestmentpluscapitalstock.
C) depreciationplusnetinvestment.
D) netinvestmentminuscapitalstock.
Answer: C
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

60) Grossinvestmentequals
A) netinvestment-depreciation+ changeininventories.
B) netinvestment+depreciation.
C) netinvestment+changeininventories.
D) depreciation+changeininventories.
Answer: B
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

508ParkinMacroeconomics,TenthEdition

61) ________isgrossinvestmentminus________.
A) Thecapitalstock;netinvestment
B) Thecapitalstock;depreciation
C) Depreciation;replacementinvestment
D) Netinvestment;depreciation
Answer: D
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

62) Thedifferencebetweengrossinvestmentandnetinvestmentis
A) thecapitalstock.
B) depreciation.
C) therealinterestrate.
D) equaltosaving.
Answer: B
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

63) Ifdepreciationislessthangrossinvestment,thennetinvestmentis
A) positive.
B) negative.
C) zero.
D) Thissituationcouldneveroccurbecauseitisimpossiblefordepreciationtobelessthan
grossinvestment.
Answer: A
Topic: NetInvestmentandGrossInvestment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

64) Netinvestment
A) equalsgrossinvestmentplusdepreciation.
B) istheonlymeasureofinvestmentusedtocalculateGDP.
C) equalsgrossinvestmentminusdepreciation.
D) isequivalenttotheexistingcapitalstockintheeconomy.
Answer: C
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth509

65) Netinvestmentequals
A) grossinvestment+depreciation.
B) depreciation+additiontoinventories.
C) savings-depreciation.
D) grossinvestment-depreciation.
Answer: D
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

66) Netinvestmentisthe
A) totalamountofgrossinvestmentminusdepreciation.
B) valueofsoftwareandothernetworkrelatedproducts.
C) profitorlossinthestockmarket.
D) valueofthedepreciatedcapitalmultipliedbythechangesinthepricelevel.
Answer: A
Topic: NetInvestmentandGrossInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

67) WhichofthefollowingisNOT afinalgood?


A) anewcomputersoldtoanNYUstudent
B) anewcarsoldtoAvisforuseintheirfleetofrentalcars
C) apursesoldtoaforeignvisitor
D) ahotdogsoldtoaspectatorataChicagoBearsfootballgame
Answer: B
Topic: StudyGuideQuestion,GDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

68) GDPequals
A) aggregateexpenditure.
B) aggregateincome.
C) thevalueoftheaggregateproductioninacountryduringagiventimeperiod.
D) alloftheabove
Answer: D
Topic: StudyGuideQuestion,ExpenditureEqualsIncome
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

510ParkinMacroeconomics,TenthEdition

2MeasuringU.S.GDP
1) TwomethodsofmeasuringGDPare
A) theincomeapproachandtheexpenditureapproach.
B) theincomeapproachandthereceiptsapproach.
C) thegoodsapproachandtheservicesapproach.
D) thesavingapproachandtheinvestmentapproach.
Answer: A
Topic: MeasuringU.S.GDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

2) GDPcanbecomputedasthesumof
A) allsalesthathavetakenplaceinaneconomyoveraperiodoftime.
B) thetotalexpendituresofconsumersandbusinessoveraperiodoftime.
C) thetotalexpendituresofconsumption,investment,andgovernmentexpenditureongoods
andservicesoveraperiodoftime.
D) thetotalexpendituresofconsumption,investment,governmentexpenditureongoodsand
services,andnetexportsoveraperiodoftime.
Answer: D
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

3) GDPusingtheexpenditureapproachequalsthesumofpersonalconsumptionexpenditures
plus
A) grossprivateinvestment.
B) grossprivateinvestmentplusgovernmentexpenditureongoodsandservices.
C) grossprivateinvestmentplusgovernmentexpenditureongoodsandservicesminus
importsofgoodsandservices.
D) grossprivateinvestmentplusgovernmentexpenditureongoodsandservicesplusnet
exportsofgoodsandservices.
Answer: D
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth511

4) TheexpenditureapproachmeasuresGDPbyadding
A) compensationofemployees,rentalincome,corporateprofits,netinterest,andproprietors
income.
B) compensationofemployees,rentalincome,corporateprofits,netinterest,proprietors
income,subsidiespaidbythegovernment,indirecttaxespaid,anddepreciation.
C) compensationofemployees,rentalincome,corporateprofits,netinterest,proprietors
income,indirecttaxespaid,anddepreciationandsubtractingsubsidiespaidbythe
government.
D) consumptionexpenditure,grossprivatedomesticinvestment,netexportsofgoodsand
services,andgovernmentexpenditureongoodsandservices.
Answer: D
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

5) ThefourcategoriesofexpenditureusedbytheexpenditureapproachmethodtocalculateGDP
are
A) consumptionexpenditure,taxes,savingandinvestment.
B) consumptionexpenditure,investment,netimportsandsaving.
C) saving,taxes,governmentexpenditureandinvestment.
D) consumptionexpenditure,investment,governmentexpenditureandnetexports.
Answer: D
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

6) Intheequation,GDP=C+ I+ G+ X- M,G refersto


A) federalgovernmentexpendituresplusalltransferpayments.
B) local,state,andfederalgovernmentspendingforallpurposes.
C) thetaxesandexpendituresofallgovernmentunits.
D) local,state,andfederalgovernmentexpenditureongoodsandservices,butdoesnot
includetransferpayments.
Answer: D
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

7) ThecomponentsoftheexpenditureapproachtomeasuringGDPincludeallofthefollowing
EXCEPT
A) netexports.
B) governmentexpenditureongoodsandservices.
C) investment.
D) theimplicitpaymentsforunpaidhouseholdwork.
Answer: D
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

512ParkinMacroeconomics,TenthEdition

8) AllofthefollowingarecomponentsoftheexpenditureapproachtomeasuringGDPEXCEPT
A) ShaniqspurchaseofamealattheOliveGardeninAtlanta.
B) aSenatorfromIowabeingpaidthemonthlysalary.
C) thearmybuyingnewM1Abramtanks.
D) FordMotorCompanybuyingnewDellcomputersforuseinitsmarketingdepartmentin
Dearborn,Michigan.
Answer: B
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: New10thedition
AACSB: AnalyticalSkills

9) ThelargestcomponentofGDPintheexpenditureapproachis
A) personalconsumptionexpenditures.
B) grossprivatedomesticinvestment.
C) governmentexpenditureongoodsandservices.
D) netexports.
Answer: A
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

10) Ofthefollowing,thelargestcomponentofGDPis
A) personalconsumptionexpenditure.
B) grossprivatedomesticinvestment.
C) governmentexpenditureongoodsandservices.
D) netexportsofgoodsandservices.
Answer: A
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

11) WhichofthefollowingisNOTpartoftheexpenditureapproachtomeasuringGDP?
A) grossprivatedomesticinvestment
B) netexportsofgoodsandservices
C) netinterest
D) personalconsumptionexpenditures
Answer: C
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth513

12) TomeasureGDPusingtheexpenditureapproachyoumustcollectdataon
A) inflation.
B) exports.
C) wages.
D) saving.
Answer: B
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

13) AggregateexpendituresincludeallofthefollowingEXCEPT
A) consumptionoffood.
B) purchasesofintermediategoods.
C) purchasesofapieceofcapitalequipment.
D) purchasesofgunsbythegovernment.
Answer: B
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

14) GrossDomesticProductisequaltothesumofconsumptionexpenditure,investment,net
exports,and________.
A) governmentexpendituresongoodsandservices
B) saving
C) profits
D) nettaxes
Answer: A
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

15) WhichofthefollowingitemsisnotacomponentoftheexpenditureapproachtomeasuringU.S.
GDP?
A) purchasesoffoodmadebyfamilies
B) socialsecuritypaymentsmadebythegovernment
C) purchasesofU.S.-mademoviesbyEuropeans
D) purchasesofnewhomesmadebyfamilies
Answer: B
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

514ParkinMacroeconomics,TenthEdition

16) IntheexpenditureapproachtoGDP,thelargestcomponentis
A) governmentexpenditureongoodsandservices.
B) personalconsumptionexpenditures.
C) grossprivatedomesticinvestment.
D) netexports.
Answer: B
Topic: ExpenditureApproach
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

17) LetCrepresentconsumptionexpenditure,S saving,I grossprivatedomesticinvestment,G


governmentexpenditureongoodsandservices,andX-Mnetexportsofgoodsandservices.
ThenGDPequals
A) C+S+G+X-M.
B) C+S+G-X-M.
C) C+I+G+X-M.
D) C+I+G-X-M.
Answer: C
Topic: ExpenditureApproach
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

18) Consumptionexpenditureisthepaymentbyhouseholdsforconsumptionof
A) goodsbutnotservices.
B) servicesbutnotgoods.
C) goodsandservices.
D) servicesandforsaving.
Answer: C
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

19) ThelargestcomponentofGDPis
A) grossprivatedomesticinvestment.
B) personalconsumptionexpenditures.
C) netexportsofgoodsandservices.
D) governmentexpenditureongoodsandservices.
Answer: B
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth515

20) Personalconsumptionexpendituresinclude
A) expendituresbyhouseholdsongoodsandservicesproducedonlyintheUnitedStates.
B) expendituresbyhouseholdsongoodsandservicesproducedintheUnitedStatesandthe
restoftheworld.
C) thepurchaseofnewhomes.
D) thepurchaseofusedgoodsandnewgoods.
Answer: B
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

21) Whichofthefollowingpurchasesisincludedinpersonalconsumptionexpenditureswhen
determininggrossdomesticproduct?
A) purchaseofanewhousebecauseofthearrivalofanewbaby
B) purchaseofanewofficebuilding
C) vacationexpensesforaspringtriptoFortLauderdale
D) purchasesofjeanstoaddtoastoresinventory
Answer: C
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

22) PersonalconsumptionexpendituresincludeallofthefollowingEXCEPTspendingon
A) consumerdurablegoods.
B) consumernondurablegoods.
C) consumerservices.
D) newhousing.
Answer: D
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

23) AllofthefollowinghouseholdexpendituresareincludedinconsumptionexpenditureEXCEPT
A) paymenttoadentistforfillingatooth.
B) purchaseofcorporatestock.
C) purchaseofanewpurse.
D) purchaseofhairstyling.
Answer: B
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

516ParkinMacroeconomics,TenthEdition

24) Grossprivatedomesticinvestmentisallpurchasesofnewlyproducedbusinesscapitalgoods
andbuildings
A) minusthechangeinbusinessinventories.
B) plusthechangeinbusinessinventoriesplusresidentialconstruction.
C) plusfixedinvestmentminusinventoryinvestment.
D) pluspurchasesofcapitalgoodsproducedinpreviousyearstoreplaceanydepreciated
capitalgoods.
Answer: B
Topic: ExpenditureApproach,Investment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

25) Thedifferencebetweengrossinvestmentandnetinvestmentis
A) inflation.
B) depreciation.
C) initialcapital.
D) consumption.
Answer: B
Topic: ExpenditureApproach,Investment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

26) Goodsthatareproducedthisyear,storedininventories,andthensoldtoconsumersnextyear
A) countinthisyearsGDP.
B) countinnextyearsGDP.
C) countinboththisyearsandnextyearsGDP.
D) arenotcountedasapartofGDP.
Answer: A
Topic: ExpenditureApproach,Investment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

27) Anew2010HondaCivicproducedin2010andpurchasedin2011is
A) partofGDPin2010.
B) partofGDPin2011.
C) notpartofGDPineitheryearbecauseitwasproducedinoneyearandsoldinanother
year.
D) partofGDPinboth2010and2011.
Answer: A
Topic: ExpenditureApproach,ConsumptionExpenditures
Skill: Recognition
Questionhistory: New10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth517

28) Whichofthefollowingareexamplesofthegrossprivatedomesticinvestmentcomponentof
GDP?
I.
thepurchaseofproductionmachinerybyIBM
II. anincreaseinthefinishedgoodsinventoryatIntel
A) Ionly
B) IIonly
C) bothIandII
D) neitherInorII
Answer: C
Topic: ExpenditureApproach,Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

29) Inthecalculationofgrossdomesticproductbytheexpenditureapproach,theinvestment
componentis
A) netinvestment.
B) grossinvestmentminusdepreciation.
C) grossinvestmentplusdepreciation.
D) grossinvestment.
Answer: D
Topic: ExpenditureApproach,Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

30) AnexampleofinvestmentincomputingrealGDPusingtheexpenditureapproachisthe
purchaseof
A) anewsetoftoolsbyanautomechanic,foruseinrepairingcars.
B) 100sharesofIBMstock.
C) a100yearoldhousebyamarriedcouple.
D) computerchipsbyDelltoputintheirpersonalcomputers.
Answer: A
Topic: ExpenditureApproach,Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

31) Anexampleofinvestmentinthenationalincomeaccountsisthepurchaseof
A) anewvanbyapotter,whopacksitwithhiswaresandtravelstoartshows.
B) 100sharesofCanadianstockontheNewYorkStockExchange.
C) a100-year-oldhousethatwasjustputontheprotectedhistoricsiteslistintheyearin
question.
D) aU.S.governmentbond.
Answer: A
Topic: ExpenditureApproach,Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

518ParkinMacroeconomics,TenthEdition

32) Inthenationalincomeaccounts,thepurchaseofanewhousecountsas
A) consumptionexpenditure.
B) investment.
C) atransfer.
D) anadditiontoinventory.
Answer: B
Topic: ExpenditureApproach,Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

33) AllofthefollowingareincludedingrossprivatedomesticinvestmentexpenditureEXCEPTa
A) businessspurchaseofafleetofcars.
B) householdspurchaseofanewhouse.
C) businessspurchaseofanothercompanysstock.
D) aretailstorespurchaseofshoestoaddtoitsinventory.
Answer: C
Topic: ExpenditureApproach,Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

34) Inthenationalincomeaccounts,governmentexpenditureongoodsandservicesrefertothose
purchasesmadeby
A) federalandstategovernmentsonly.
B) thefederalgovernmentonly.
C) stateandlocalgovernmentsonly.
D) alllevelsofgovernment.
Answer: D
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

35) Inthenationalincomeaccounts,governmentexpenditureongoodsandservicesexclude
A) transferpayments.
B) stateandlocalgovernmentpurchases.
C) localgovernmentpurchasesbutincludestategovernmentpurchases.
D) spendingonnationaldefense.
Answer: A
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth519

36) Whichofthefollowingisincludedinthegovernmentexpenditurecomponentofthe
expenditureapproachtoGDP?
A) stategovernmentexpenditureonlocalschools
B) transferpayments
C) changesininventories
D) taxes
Answer: A
Topic: TheExpenditureApproach,GovernmentPurchases
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

37) Whichoneofthefollowingtransactionsinaparticularyearisincludedingrossdomestic
productforthatyear?
A) SocialSecuritypaymentstoretirees
B) ThegovernmentpaysacomputerservicescompanythatassistedinthedeliveryofSocial
Securitypaymentstoretirees.
C) Acarisproducedinthepreviousyearandremainsininventoryfortheentireyearunder
consideration.
D) Astay-at-homeparentperformshouseworkthatthefamilywouldotherwisehavepaida
maid$20,000ayeartoperform.
Answer: B
Topic: TheExpenditureApproach,GovernmentPurchases
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

38) WhichofthefollowingisincludedingovernmentexpenditureswhenmeasuringGDP?
A) SocialSecuritypayments
B) unemploymentcompensationpayments
C) pensionpaymentmadetopastpresidents
D) thecurrentpresidentssalary
Answer: D
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

39) Transferpayments
A) areincludedinthegovernmentexpenditurecategoryingrossdomesticproduct.
B) refertoallpaymentsmadetohouseholdsbygovernments.
C) refertopaymentsmadebythegovernmentthatarenotmadetopurchaseagoodor
service.
D) aremadebyhouseholdstofirmsinexchangeforgoodsandservices.
Answer: C
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

520ParkinMacroeconomics,TenthEdition

40) InthecomputationofGDP,socialsecuritypaymentscountas
A) transferpaymentsandareincludedinGDP.
B) transferpaymentsandarenotincludedinGDP.
C) governmentexpenditureongoodsandservicesandareincludedinGDP.
D) governmentexpenditureongoodsandservicesandarenotincludedinGDP.
Answer: B
Topic: TheExpenditureApproach,GovernmentPurchases
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

41) WhichofthefollowingitemsisNOT partofgovernmentexpenditureongoodsandservicesin


theGDPaccounts?
A) gasolinepurchasesforgovernmentcarpools
B) SocialSecurityexpenditures
C) newcomputerhardwareforusebytheIRS
D) drapestobrightenupthepresidentsoffice
Answer: B
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

42) TransferpaymentsarenotincludedinGDPbecause
A) theirmarketvaluecannotbeaccuratelydetermined.
B) theydonotgenerateadditionalincome.
C) theyarenotpurchasesofgoodsorservices.
D) theirvalueisincludedingovernmentexpenditure.
Answer: C
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

43) WhichofthefollowingtransferpaymentsisincludedinGDP?
A) SocialSecuritypayments
B) welfarepayments
C) veteransbenefits
D) noneoftheabove
Answer: D
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth521

44) WhichofthefollowingisNOT partofGDPcalculatedusingtheexpenditureapproach?


A) GeneralMotorspurchasesofnewcapitalequipment
B) expendituresbythefederalgovernmentfornationaldefense
C) socialsecuritypaymentsmadetotheelderly
D) thepurchaseofnewhomesbyconsumers
Answer: C
Topic: TheExpenditureApproach,GovernmentPurchases
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

45) Transferpaymentsarenotpartofgovernmentexpenditureongoodsandservicesbecause
transferpayments
A) arenotpredictablegiventhenatureoftheirappropriationandallocation.
B) donotrepresentthepurchaseofafinalgoodorservice.
C) arenotalwaysspentongoodsproducedintheU.S.
D) Thepremiseofthequestionisincorrectbecausetransferpaymentsarepartofgovernment
purchasesofgoodsandservices.
Answer: B
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

46) GovernmentexpendituresincludedintheexpenditureapproachtoGDPinclude________.
A) socialsecurityandeducation
B) netexports
C) buyinganewbomber
D) BothanswersAandCarecorrect
Answer: C
Topic: ExpenditureApproach,GovernmentExpenditure
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

47) Netexportsofgoodsandservicesequalthe
A) exportsofgoodsandservicesdividedbytheimportsofgoodsandservices.
B) exportsofgoodsandservicesplustheimportsofgoodsandservices.
C) exportsofgoodsandservicesminustheimportsofgoodsandservices.
D) importsofgoodsandservicesminustheexportsofgoodsandservices.
Answer: C
Topic: ExpenditureApproach,NetExports
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

522ParkinMacroeconomics,TenthEdition

48) Netexportsisnegativeif
A) thevalueofexportsexceedsthevalueofimports.
B) thevalueofimportsexceedsthevalueofexports.
C) thetariffpaymentsareincludedinthevalueofimportedandexporteditems.
D) toomuchproductionoccursintheexportingcountryduringtheyear.
Answer: B
Topic: ExpenditureApproach,NetExports
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

49) In2010,netexportsintheUnitedStateswere
A) zero.
B) positive.
C) negative.
D) greaterthanpersonalconsumptionexpenditures.
Answer: C
Topic: ExpenditureApproach,NetExports
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

50) TocalculateGDPusingtheexpenditureapproach,inpartitisnecessaryto
A) addimportsandexports.
B) addimportsandsubtractexports.
C) addexportsandsubtractimports.
D) subtractbothexportsandimports.
Answer: C
Topic: ExpenditureApproach,NetExports
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

51) Anincreaseinexportsofgoodsorserviceswithnochangeinimportsofgoodsorservices
A) decreasesGDP.
B) increasesGDP.
C) mayincreaseordecreaseGDPdependingonwhetheritistheexportofgoodsorthe
exportofservicesthatincreased.
D) hasnoeffectonGDP.
Answer: B
Topic: ExpenditureApproach,NetExports
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth523

52) Byitself,anincreaseinexports
A) increasesGDP.
B) decreasesGDP.
C) meansimportsdecreasebythesameamount.
D) caneitherincreaseordecreaseGDP,dependingonwhethertheexportsaredurableor
nondurable.
Answer: A
Topic: ExpenditureApproach,NetExports
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

53) IfFordsells200Explorersforatotalof$400,000toGermany,whiletheUnitedStatesimports
100BMWsforatotalof$500,000fromGermany,
A) U.S.GDPincreasesbecauseitsellsmoreExplorers.
B) U.S.GDPdecreasesbecausenetexportsarenegative.
C) GermanysGDPdecreases.
D) U.S.netexportsispositive.
Answer: B
Topic: ExpenditureApproach,NetExports
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

54) AnU.S.firmbuysanewindustrialsewingmachinefromacompanylocatedinFrance.Which
ofthefollowingistrue?
I.
U.S.netexportsdecrease.
II. U.S.investmentincreases.
A) onlyI
B) onlyII
C) bothIandII
D) neitherInorII
Answer: C
Topic: TheExpenditureApproach,NetExports
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

55) IfanAmericanfirmproducesgoodsthataresoldtoaGermanhousehold,then
A) GermanGDPincreasesbutnotU.S.GDP.
B) U.S.GDPincreases.
C) thetransactionisconsideredanexportintheGermanGDPaccounts.
D) netexportsintheUnitedStateswillnotchangebecauseanexportimmediatelygenerates
anoffsettingimport.
Answer: B
Topic: ExpenditureApproach,NetExports
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

524ParkinMacroeconomics,TenthEdition

56) InthecalculationofGDPbytheexpenditureapproach,exportsfromtheUnitedStatesmustbe
A) subtractedbecausetheyareincludedintheconsumptionofaforeigncountry.
B) ignoredbecausetheyarenotboughtbyU.S.citizens.
C) subtractediftheyareboughtbyforeignfirmsforinvestmentpurposes.
D) added.
Answer: D
Topic: ExpenditureApproach,NetExports
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Item
Personalconsumptionexpenditure
Governmentexpenditureongoods
andservices
Nettaxes
Grossprivatedomesticinvestment
Importsofgoodsandservices
Exportsofgoodsandservices

Millionsof
dollars
80
30
35
20
10
20

57) Usingtheinformationinthetableabove,calculatethevalueofGDP.
A) $185million
B) $145million
C) $195million
D) $140million
Answer: D
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

58) Usetheinformationinthetableabovetocalculatethevalueofnetexports.
A) $10million
B) $0
C) -$10million
D) $30million
Answer: A
Topic: ExpenditureApproach,NetExports
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth525

59) LastyearinthecountryofNerfimportsequaledexports.NerfsGDPwas$500million,its
consumerexpenditurewas$380million,anditsinvestmentwas$20million.Nerfsgovernment
expenditureongoodsandserviceswere________.
A) $100million
B) $900million
C) $500million
D) zero
Answer: A
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Modified10thedition
AACSB: AnalyticalSkills

Item
Governmentexpenditureon
goodsandservices
Compensationofemployees
Grossprivatedomestic
investment
Rentalincome
Personalconsumption
expenditures
Netinterest
Netexportsofgoodsand
services
Indirectbusinesstaxesand
depreciation

Billionsofdollars
250
1,675
325
20
1425
40
100
300

60) Theabovetableshowssome(butnotall)nationalincomeaccountingdataforahypothetical
country.Accordingtothesedata,thevalueofGDPis________billion.
A) $2100
B) $1850
C) $2000
D) $2050
Answer: A
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

526ParkinMacroeconomics,TenthEdition

Item
Personalconsumption
expenditure
Grossprivatedomestic
investment
Governmentexpenditure
ongoodsandservices
Exportsofgoodsand
services
Importsofgoodsand
services
Depreciation
Indirectbusinesstaxes

Dollars
1500
355
590
70
50
200
75

61) Basedonthedataintheabovetable,grossdomesticproductequals
A) $2,190.
B) $2,840.
C) $2,465.
D) $2,750.
Answer: C
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Item
Personalconsumption
expenditure
Grossprivatedomestic
investment
Governmentexpenditureon
goodsandservices
Exportsofgoodsandservices
Importsofgoodsandservices
Nettaxes

Billionsofdollars
100
10
50
30
30
50

62) TheabovetableshowsdatafromtheGDPaccountsofHypothetica.HypotheticasGDPis
________billion.
A) $270
B) $210
C) $190
D) $160
Answer: D
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth527

63) Ifimportsare$100millionlessthanexports,governmentexpendituresare$500million,
consumerexpendituresare$1billion,andgrossinvestmentspendingis$500million,thenGDP
is
A) $1billion.
B) $1.9billion.
C) $2billion.
D) $2.1billion.
Answer: D
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

64) Ifconsumptionexpendituresare$500million,netinvestmentis$100million,depreciation
equals$5million,importsare$50million,exportsare$55million,governmentexpenditureon
goodsandservicesis$220million,andgovernmenttransferpaymentsare$20million,then
GDPis
A) $790million.
B) $800million.
C) $830million.
D) $850million.
Answer: C
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Component
Nettaxes
Personalconsumption
expenditure
Depreciation
Governmentexpenditure
Grossinvestment
Exports
Imports
Householdsaving

Amount
(billionsofdollars)
1,635
5,566
622
1,784
1,234
957
1,138
1,202

65) Usingthedatainthetableabove,whatisthevalueofGDP?
A) $13,516billion
B) $10,679billion
C) $9,541billion
D) $8,403billion
Answer: D
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

528ParkinMacroeconomics,TenthEdition

66) Usingthedataintheabovetable,whatisthevalueofnetexports?
A) -$181billion
B) $181billion
C) $957billion
D) -$957billion
Answer: A
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

67) Usingthedataintheabovetable,whatisthevalueofnationalsaving?
A) $1,202billion
B) $2,837billion
C) $1,053billion
D) -$85billion
Answer: C
Topic: NationalSaving
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Component
Nettaxes
Personalconsumption
expenditure
Depreciation
Governmentexpenditure
Grossinvestment
Netexports
Compensationof
employees

Amount
(dollars)
10
50
8
20
26
-10
65

68) Usingtheinformationinthetableabove,calculategrossdomesticproduct.
A) $118
B) $108
C) $86
D) $78
Answer: C
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth529

69) Usingtheinformationinthetableabove,calculatethegovernmentsbudgetdeficitorsurplus.
A) $2
B) -$4
C) -$10
D) $4
Answer: C
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Component
Personalconsumption
expenditure
Government
expenditure
Grossinvestment
Netinvestment
Exports
Imports

Amount
(billionsof
dollars)
3,720
430
610
520
650
720

70) Usingtheinformationinthetableabove,calculategrossdomesticproduct.
A) $5,130billion
B) $5,320billion
C) $4,760billion
D) $4,690billion
Answer: D
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

71) Usingtheinformationinthetableabove,netexportsequals
A) $1,370billion.
B) $650billion.
C) $20billion.
D) -$70billion.
Answer: D
Topic: NetExports
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

530ParkinMacroeconomics,TenthEdition

72) Usingtheinformationinthetableabove,depreciationequals
A) -$90billion.
B) $90billion.
C) -$70billion.
D) someamountthatcannotbedetermined.
Answer: B
Topic: Depreciation
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Governmentpurchasesofgoodsandservices
Depreciation
Grossprivatedomesticinvestment
Personalincometaxes
Nettaxes
Netexportsofgoodsandservices
Personalconsumptionexpenditures
Netinterest

$240
240
400
140
120
80
640
100

73) Fromthedataintheabovetable,GDPequals
A) $1,120.
B) $1,280.
C) $1,290.
D) $1,360.
Answer: D
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

74) TheapproachtoGDPthatsumscompensationofemployees,rentalincome,corporateprofits,
netinterest,proprietorsincome,depreciation,andindirecttaxesandsubtractssubsidiesisthe
A) opportunitycostapproach.
B) expenditureapproach.
C) addedcostapproach.
D) incomeapproach.
Answer: D
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth531

75) TheincomeapproachtomeasuringGDPsumstogether
A) compensationofemployees,rentalincome,corporateprofits,netinterest,proprietors
income,subsidiespaidbythegovernment,indirecttaxespaid,anddepreciation.
B) compensationofemployees,rentalincome,corporateprofits,netinterest,proprietors
income,indirecttaxespaid,anddepreciationandsubtractssubsidiespaidbythe
government.
C) thesalesofeachfirmintheeconomy.
D) thecostsofeachfirmintheeconomyandthensubtractsindirectbusinesstaxesand
depreciation.
Answer: B
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

76) ProprietorsincomeisacomponentofwhichapproachtomeasuringGDP?
A) incomesapproach
B) expenditureapproach
C) costapproach
D) outputapproach
Answer: A
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

77) TheincomeapproachtomeasuringGDP
A) determinesthecostofproduction,thenadjustsittoequalthemarketvalueofproduction.
B) sumsallincomesearnedintheUnitedStatesandmakesnootheradjustmentsbecause
otheradjustmentsarenotnecessary.
C) measuresthecostofproducingGDPratherthanthemarketvalue.
D) sumsthevalueateachstageofproductionplusthevalueofdepreciation.
Answer: A
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

78) ThefivecategoriesofincomeusedintheincomeapproachtothemeasurementofGDPare
A) consumption,saving,rentalincome,corporateprofits,andinvestment.
B) employeecompensation,netinterest,rentalincome,corporateprofits,andproprietors
income.
C) employeecompensation,consumption,rentalincome,corporateprofits,andproprietors
income.
D) employeecompensation,saving,rentalincome,corporateprofits,andinvestment.
Answer: B
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

532ParkinMacroeconomics,TenthEdition

79) WhichofthefollowingexpressionsequalsGDP?
A) compensationofemployees+consumption+ depreciation+ netinvestment
B) compensationofemployees+netinterest+ rentalincome+ depreciation+corporate
profits+proprietorsincome+indirecttaxes-subsidies
C) compensationofemployees+netexports+ depreciation+ corporateprofits
D) compensationofemployees+grossinvestment+ rentalincome+ depreciation+corporate
profits+indirecttaxes-subsidies
Answer: B
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

80) WhichofthefollowingisacomponentoftheincomesapproachtoGDP?
A) consumptionexpenditure
B) wagesandsalaries
C) investment
D) governmentexpenditureongoodsandservices
Answer: B
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

81) TheincomeapproachmeasuresGDPbyaddingtogethercompensationofemployees,
proprietorsincome,________.
A) netinvestment,saving,andfarmersincome
B) netinterest,rentalincome,andcorporateprofits
C) netinvestment,rentalincome,andcorporateprofits
D) netsaving,investmentincome,andprofits
Answer: B
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

82) WhichofthefollowingitemsisNOT acomponentoftheincomeapproachtomeasuringU.S.


GDP?
A) interestearnedonsavingsdeposits
B) profitsmadebybusinesses
C) incomeearnedbybusinessesthatexportgoods
D) investment
Answer: D
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth533

83) WhichofthefollowingisNOT apartoftheincomeapproachtodeterminingGDP?


A) rentalincome
B) grossprivatedomesticinvestment
C) netinterest
D) indirectbusinesstaxes
Answer: B
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

84) WhichofthefollowingisNOT oneofthecomponentsforcomputingGDPbaseduponthe


incomeapproach?
A) investment
B) corporateprofits
C) compensationofemployees
D) netinterest
Answer: A
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

85) WhichofthefollowingisNOT includedintheincomeapproachtomeasuringGDP?


A) netinterest
B) netexports
C) corporateprofits
D) compensationofemployees
Answer: B
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

86) InthecountryofDarrowby,netdomesticincomeatfactorcostis$2.0million.Grossdomestic
productis$3.0million,anddepreciationis$0.5million.Indirecttaxeslesssubsidies________.
A) are$1million
B) are$0.5million
C) cannotbecalculated
D) are-$0.5million
Answer: B
Topic: IncomeApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

534ParkinMacroeconomics,TenthEdition

Item
Compensationofemployees
Netinterestandrentalincome
Corporateprofits
Proprietorsincome

Billionsof
dollars
80
30
10
20

87) Usetheinformationinthetableaboveplusthefactthatindirecttaxeslesssubsidiesare$10
billionanddepreciationis$30billiontocalculatethevalueofGDP.
A) $180billion
B) $150billion
C) $140billion
D) $130billion
Answer: A
Topic: IncomeApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

88) Thelargestcomponentofnationalincomeis
A) compensationofemployees.
B) rentalincome.
C) corporateprofits.
D) proprietorsincome.
Answer: A
Topic: IncomeApproach,CompensationofEmployees
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

89) Lookingatthecomponentsoftheincomeapproachweseethat
A) compensationofemployeesisthelargestcategory.
B) consumptionisthelargestcategory.
C) profitsarethelargestcategory.
D) rentalincomeisthelargestcategory.
Answer: A
Topic: IncomeApproach,CompensationofEmployees
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth535

90) Compensationpaidtoemployeesrepresented________ofGDPfortheUnitedStatesin2010.
A) about5percent
B) approximately15percent
C) 35percent
D) morethan50percent
Answer: D
Topic: IncomeApproach,CompensationofEmployees
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

91) Whichofthefollowingisincludedincompensationofemployeespartoftheincomeapproach
tomeasuringGDP?
I. Wagesandsalaries.
II. Pensionfundcontributions.
III. Socialsecuritycontributions.
A) Ionly
B) IandII
C) IandIII
D) I,IIandIII
Answer: D
Topic: IncomeApproach,CompensationofEmployees
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

92) WhencalculatingthecompensationofemployeespartofGDP,
A) socialsecuritycontributionsmustbeincluded.
B) fringebenefitsarenotincluded.
C) taxeswithheldonearningsarenotincluded.
D) thevalueofvacationtimemustbeincluded.
Answer: A
Topic: IncomeApproach,CompensationofEmployees
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

93) Inthenationalincomeaccounts,netinterestisthetotalinterestpaymentsreceivedby
householdsonloansmadebythemminus
A) interestreceivedfromhouseholdsownershipofgovernmentbonds.
B) interestpaymentsmadebyhouseholdsontheirownborrowing.
C) interestpaymentsmadebyhouseholdstoforeignlenders.
D) taxespaidbyhouseholdsontheirinterestincome.
Answer: B
Topic: IncomeApproach,NetInterest
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

536ParkinMacroeconomics,TenthEdition

94) Rentalincomeincludes
A) thepaymentfortheuseofland.
B) thepaymentfortheuseofallrentedinputs.
C) noincomefromrentalhousingbecausemosthousesareoccupiedbytheirowners.
D) BothanswersAandBarecorrect.
Answer: D
Topic: IncomeApproach,RentalIncome
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

95) WhichofthefollowingisincludedinthecategoryofcorporateprofitswhenmeasuringGDP?
I. Profitspaidasdividends.
II. Undistributedprofits.
III. Incomereceivedbyownersandoperatorsofbusinesses.
A) Ionly
B) IandII
C) IandIII
D) I,IIandIII
Answer: B
Topic: IncomeApproach,CorporateProfits
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

96) Anindirecttaxisataxpaidbyconsumers
A) toastateorlocalgovernment.
B) whentheypurchasegoodsandservices.
C) onunearnedincome(asopposedtowagesandsalaries).
D) thatisapercentageofthevalueoftheirrealproperty.
Answer: B
Topic: IndirectTax
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

97) Anindirecttaxisexemplifiedby
A) anincometax.
B) asalestax.
C) asubsidy.
D) Noneoftheaboveanswersiscorrect.
Answer: B
Topic: IndirectTax
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth537

98) Whichofthefollowingbestrepresentsanindirecttax?
A) federalincometax
B) stateincometax
C) localpropertytax
D) salestaxespaidongoodsandservices
Answer: D
Topic: IndirectTax
Skill: Conceptual
Questionhistory: New10thedition
AACSB: ReflectiveThinking

99) Thepresenceof________createsadifferenceinthevaluebetweenthemarketpriceandthe
factorcostofaproduct.
A) indirecttaxesandconsumption
B) subsidiesanddirecttaxes
C) corporateprofitsandsubsidies
D) indirecttaxesandsubsidies
Answer: D
Topic: IndirectTax
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

100) Thesumofcompensationtoemployees,rentalincome,corporateprofits,netinterest,and
proprietorsincomeis
A) grossdomesticproduct.
B) grossdomesticincome.
C) netdomesticincomeatfactorcost.
D) netdomesticproduct.
Answer: C
Topic: NetDomesticIncomeatFactorCost
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

101) Tworeasonswhyvaluinggoodsattheirmarketpricesisdifferentthanvaluingthemattheir
factorcostsinclude
A) depreciationandinvestment.
B) exportsandimports.
C) personaltaxesandcorporatetaxes.
D) indirecttaxesandsubsidies.
Answer: D
Topic: NetDomesticIncomeatFactorCost
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

538ParkinMacroeconomics,TenthEdition

Corporateprofits
Netinterest
Indirecttaxeslesssubsidies
Depreciation
Compensationofemployees
Proprietorsincome
Rentalincome
Personalconsumptionexpenditures
Governmentexpenditureongoods
andservices
Netexportsofgoodsandservices

$200
150
230
250
1,350
150
70
1,400
500
40

102) Usingthedatainthetableabove,grossdomesticproductequals
A) $1,920.
B) $1,940.
C) $2,150.
D) $2,400.
Answer: D
Topic: IncomeApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

103) Usingthedataintheabovetable,grossprivatedomesticinvestmentequals
A) $250.
B) $260.
C) $460.
D) someamountthatcannotbedeterminedwithoutmoreinformation.
Answer: C
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

104) Usingthedataintheabovetable,netprivatedomesticinvestmentequals
A) $210.
B) $260.
C) $510.
D) someamountthatcannotbedeterminedwithoutmoreinformation.
Answer: A
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth539

Item
Personalincome
Netdomesticincomeat
factorcost
Governmentexpenditure
ongoodsandservices
Depreciation
Grossprivatedomestic
investment
Indirecttaxes
Subsidies

Billionsof
dollars
1,200
2,100
400
200
100
600
100

105) Theabovetableshowssomenationalincomeaccountingdataforanation.Inthisnation,gross
domesticproductisequalto________billion.
A) $2,000
B) $2,300
C) $2,500
D) $2,800
Answer: D
Topic: IncomeApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

540ParkinMacroeconomics,TenthEdition

Item
Netinterest
Governmentexpenditure
ongoodsandservices
Compensationof
employees
Rentalincome
Proprietorsincome
Indirecttaxesminus
subsidies
Corporateprofits
Exportsofgoodsand
services
Importsofgoodsand
services
Depreciation

Dollars
239
136
1,735
37
128
259
194
249
289
333

106) Usingthedataintheabovetable,grossdomesticproductascalculatedbytheincomeapproach
equals________.
A) $2,333
B) $2,592
C) $2,925
D) $2,205
Answer: C
Topic: IncomeApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth541

Component
Grossinvestment
Personalconsumption
expenditure
Depreciation
Governmentexpenditureon
goodsandservices
U.S.imports
U.S.exports
Compensationofemployees

Amount
(billionsof
dollars)
1300
1475
25
1315
260
249
65

107) Theabovetablegivesdataforahypotheticalnation.Grossdomesticproductis
A) $4,049billion.
B) $4,079billion.
C) $4,054billion.
D) $4,339billion.
Answer: B
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

108) NominalGDPis
A) realGDPadjustedforpricechanges.
B) GDPvaluedatpricesofthatyear.
C) GDPvaluedatconstantprices.
D) realGDPvaluedatbaseyearprices.
Answer: B
Topic: NominalGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

109) NominalGDPisthevalueoffinalgoodsandservices
A) atthepricesofthatyear.
B) atthepricesoftheimmediatelypreviousyear.
C) atthepricesofabaseyear.
D) producedinforeigncountriesbutconsumedinthedomesticcountry.
Answer: A
Topic: NominalGDP
Skill: Recognition
Questionhistory: New10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

542ParkinMacroeconomics,TenthEdition

110) NormallyintheUnitedStatestherelationshipbetweennominalandrealGDPforagivenyear
is
A) realGDPisgreaterthannominalGDPbecauseofpriceincreases.
B) nominalGDPisgreaterthanrealGDPbecauseofpriceincreases.
C) nominalGDPequalsrealGDP.
D) nominalGDPisgreaterthanrealGDPbecauseofpricedecreases.
Answer: B
Topic: NominalGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

111) Ofthefollowing,whichiscorrect?
A) NominalGDPdoesnotchangewhentheproductionofgoodsandservicesincreases.
B) NominalGDPisnotaffectedbychangesinpricesofgoodsandservices.
C) NominalGDPincreaseswhenthepricesofgoodsandservicesincrease.
D) RealGDPchangesonlywhenthepricesofgoodsandservicesreallychange.
Answer: C
Topic: RealandNominalGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

112) RealGDPis
A) anincreaseintheaveragelevelofprices.
B) thevalueoftotalproductionwhentheunemploymentrateis6percent.
C) thevalueoftotalproductionofallthenationsfarms,factories,shopsandofficesmeasured
inthepricesofasingleyear.
D) thevalueoftotalproductionofallthenationsfarms,factories,shopsandofficesmeasured
atthepricesoftheyearitwasproduced.
Answer: C
Topic: RealGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

113) RealGDPmeasuresthe
A) totalprofitsearnedbyallbusinessesvaluedusingpricesfromasingleyear.
B) changesinthepricesofoutputmeasuredindollars.
C) generalupwarddriftinprices.
D) valueoftotalproductionlinkedtopricesofasingleyear.
Answer: D
Topic: RealGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth543

114) ________grossdomesticproductisthevalueof________linkedbacktothepricesofasingle
year.
A) Real;totalproduction
B) Real;productionpossibilities
C) Productivity;theconsumerpriceindex
D) Nominal;totalproduction
Answer: A
Topic: RealGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

115) RealGrossDomesticProductis
A) theamountofpeopleunemployeddividedbythetotallaborforce.
B) theproductivityoflabor.
C) themostthatcanbeproducedwhentheeconomysresourcesarefullyemployed.
D) thevalueoftotalproductionlinkedbacktothepricesofasingleyear.
Answer: D
Topic: RealGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

116) WhichofthefollowingisTRUEregardingrealGDP?
I.
RealGDPisthevalueofthetotalproductionofthecountrysfarms,factories,shops,and
offices.
II. RealGDPriseswheneverinflationoccurs.
III. RealGDPdoesnotmeasureallthatisproduced.
A) IandII
B) IandIII
C) IIandIII
D) I,IIandIII
Answer: B
Topic: RealGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

117) Inyearswithinflation,nominalGDPincreases________realGDP.
A) fasterthan
B) slowerthan
C) atthesamerateas
D) sometimesfaster,sometimesslower,andsometimesatthesamerateas
Answer: A
Topic: RealandNominalGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

544ParkinMacroeconomics,TenthEdition

118) Supposeaneconomyhassomeinflation.Then,afterabaseyear,thevalueofrealGDPwill
A) belessthannominalGDP.
B) notbedifferentfromnominalGDP.
C) begreaterthannominalGDP.
D) willbeapproximatelyhalfthevalueofnominalGDP.
Answer: C
Topic: RealandNominalGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

119) GrossprivatedomesticinvestmentisacomponentofwhichapproachtomeasuringGDP?
A) incomesapproach
B) expenditureapproach
C) linkingapproach
D) outputapproach
Answer: B
Topic: StudyGuideQuestion,ExpenditureApproach,Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

120) WhichofthefollowingisNOTacomponentoftheincomesapproachtoGDP?
A) netexports
B) wagesandsalaries
C) corporateprofits
D) proprietorsincome
Answer: A
Topic: StudyGuideQuestion,IncomesApproach
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

3TheUsesandLimitationsofRealGDP
1) Themaximumamountofproductionthatcanbeproducedwhileavoidingshortagesoflabor,
capital,land,andentrepreneurshipthatwouldbringrisinginflationiscalled
A) realGDP.
B) nominalGDP.
C) actualGDP.
D) potentialGDP.
Answer: D
Topic: PotentialGDP
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth545

2) PotentialGDPis
A) anothernameforrealGDP.
B) alwaysdifferentfromrealGDP.
C) thelevelofGDPnotadjustedforpricechanges.
D) themaximumamountofGDPthatcanbeproducedwhileavoidingshortagesoflabor,
capital,land,andentrepreneurshipthatwouldbringrisinginflation.
Answer: D
Topic: PotentialGDP
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

3) PotentialGDPis
A) themaximumGDPthataneconomyactuallyachievesthroughoutitsentirehistory.
B) thelevelofGDPachievedduringperiodswhen100percentofthelaborforceisemployed.
C) agoalthatcanneverbeachievedbytheeconomy.
D) themaximumamountofGDPthatcanbeproducedwhileavoidingshortagesoflabor,
capital,land,andentrepreneurshipthatwouldbringrisinginflation.
Answer: D
Topic: PotentialGDP
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

4) PotentialGDPisthe
A) themaximumamountofproductionthatcanbeproducedwhileavoidingshortagesof
labor,capital,land,andentrepreneurshipthatwouldbringrisinginflation.
B) currentvalueofproductionintheeconomy.
C) valueofproductionwhentheeconomyisinarecession.
D) valueofproductionwhentheeconomyisatapeak.
Answer: A
Topic: PotentialGDP
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

5) PotentialGDP
A) measurestheactualproductionfromyeartoyear.
B) measuresthemaximumamountofproductionthatcanbeproducedwhileavoiding
shortagesoflabor,capital,land,andentrepreneurshipthatwouldbringrisinginflation.
C) iscyclical.
D) BothanswersAandCarecorrect
Answer: B
Topic: PotentialGDP
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

546ParkinMacroeconomics,TenthEdition

6) Inanyyear,realGDP
A) mustalwaysbelessthanpotentialGDP.
B) mightbegreaterorlessthanpotentialGDP.
C) willalwaysbegreaterthanpotentialGDPbecauseofthetendencyofnationstoincur
inflation.
D) alwaysequalspotentialGDP.
Answer: B
Topic: PotentialGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

7) TherelationshipbetweenrealGDPandpotentialGDPisthat
A) realGDPalwaysequalspotentialGDP.
B) realGDPneverequalspotentialGDP.
C) realGDPfluctuatesaboutpotentialGDP.
D) realGDPisalwaysbelowpotentialGDP.
Answer: C
Topic: PotentialGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

8) Inanyyear,realGDP
A) mustalwaysbelessthanpotentialGDP.
B) mightbegreaterorlessthanpotentialGDP.
C) willbegreaterthanpotentialGDPiftheinflationrateispositive.
D) alwaysequalspotentialGDP.
Answer: B
Topic: PotentialGDP
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

9) ________referstoaperiodwhenthe________decreases.
A) Recession;growthrateofnominalGDP
B) Recession;growthrateofoutputperperson
C) Productivitygrowthslowdown;growthrateofrealGDP
D) Productivitygrowthslowdown;growthrateofoutputperperson
Answer: D
Topic: ProductivityGrowthSlowdown
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth547

10) Theseriesofupsanddownstheeconomytendstomoveiniscalled
A) thebusinesscycle.
B) arecession.
C) adepression.
D) economicgrowth.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

11) Thebusinesscyclerefersto
A) fluctuationsinthelevelofrealGDParoundpotentialGDP.
B) changesinthelevelofnominalGDP.
C) changesinthelevelofthestockmarket.
D) changesinthelevelofemployment.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

12) Abusinesscycleis
A) thepatternofshort-runupwardanddownwardmovementsintotaloutput.
B) theincreaseinconsumerspendingthataccompaniesanincreaseindisposableincome.
C) thecyclicalchangeinthenationsbalanceoftrade.
D) thecyclicalmovementintheinterestrates.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

13) Thebusinesscycleisthe
A) regulargrowthrateoftherealGDP.
B) regularfluctuationsofrealGDPbelowpotentialGDP.
C) irregularfluctuationsofpricesaroundrealGDP.
D) irregularfluctuationsofrealGDParoundpotentialGDP.
Answer: D
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

548ParkinMacroeconomics,TenthEdition

14) Businesscyclesare
A) irregular,withsomehavingtworecessionsandnoexpansion.
B) predictable,witharecessionfollowingatrough.
C) unpredictable,butalwayshavetwophasesandtwoturningpoints.
D) unpredictable,anddontalwayshavetwophasesandtwoturningpoints.
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

15) Businesscycles
A) aremorevolatileduringaRepublicanadministration.
B) areunpredictableduetopoliticalupheavalsandglobalmarkets.
C) followapatternoftrough,expansion,peakandrecession.
D) areallidenticalindurationoverthelastcentury.
Answer: C
Topic: BusinessCycle
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

16) Whichofthefollowingstatementsistrue?
A) RealGDPfluctuatesaroundpotentialGDP.
B) PotentialGDPfluctuatesaroundrealGDP.
C) PotentialGDPisthesameasrealGDP.
D) Whenalloftheeconomysresourcesarefullyemployed,thevalueofproductioniscalled
realGDP.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

17) RealGDP
A) fluctuatesfromyeartoyearbutisalwaysbelowpotentialGDP.
B) fluctuatesaroundpotentialGDP.
C) growsataconstant3to4percentperyear.
D) canbecalledpotentialGDPwhenitisadjustedforpricechanges.
Answer: B
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth549

18) Thetermbusinesscyclemostcloselyreferstothe
A) fluctuatingprofitsoffirms.
B) fiscalyear.
C) accountingperiodusedbyfirms.
D) alternatingperiodsofexpansionsandrecessions.
Answer: D
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

19) Whichofthefollowingisnotaphaseorturningpointofthebusinesscycle?
A) recession
B) expansion
C) shutdown
D) trough
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

20) Thefourpartsofthebusinesscycleoccurinthefollowingorder:
A) recession,trough,peak,expansion.
B) expansion,trough,peak,recession.
C) recession,trough,expansion,peak.
D) expansion,trough,recession,peak.
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

21) Whichofthefollowingarepartsofthebusinesscycles?
A) peakandpotentialGDP
B) realGDPandpotentialGDP
C) recessionandexpansion
D) inflationandrecession
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

550ParkinMacroeconomics,TenthEdition

22) WhichofthefollowingisTRUEregardingbusinesscycles?
I.
Cyclesarepredictable.
II. Ineachcycle,apeakfollowsanexpansion.
III. PotentialGDPfluctuatesaroundrealGDP.
A) IandII
B) IandIII
C) IIandIII
D) IIonly
Answer: D
Topic: BusinessCycle
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

23) Acommondefinitionofarecessionisatimewith
A) adeclineinthepricelevel.
B) adeclineininterestrates.
C) adecreaseinrealGDPfortwoormoresuccessivequarters.
D) adecreaseinrealGDPfortwoormoresuccessiveyears.
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

24) Arecessioniscommonlydefinedasaperiodwith
A) negativegrowthrateinrealGDPthatlastsatleastonequarter.
B) positivegrowthrateinrealGDPthatlastsatleastonequarter.
C) positivegrowthrateinrealGDPthatlastsatleasttwoquarters.
D) negativegrowthrateinrealGDPthatlastsatleasttwoquarters.
Answer: D
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

25) Acommondefinitionofarecessionisaperiodoftime
A) ofatleast6monthsduringwhichrealGDPdecreases.
B) withanincreaseinrealeconomicoutputfromthepreviousperiod.
C) withnochangeinrealGDP.
D) withnochangeinthedollar(money)valueofeconomicoutput.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth551

26) Arecessioniscommonlydefinedasoccurringwhen
A) realGDPdecreasesforaperiodof12ormoremonths.
B) realGDPdecreasesforaperiodof6ormoremonths.
C) theunemploymentraterisesabove7.5percentfor6ormoremonths.
D) theunemploymentraterisesabove5.0percentfor12ormoremonths.
Answer: B
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

27) Bycommondefinition,arecessionoccurswhen
A) theinternationaldeficitworsensforatleasttwosuccessivequarters.
B) thegovernmentbudgetdeficitexceedsthenationaldebt.
C) theinflationrateexceeds3.5percent.
D) realGDPdecreasesforatleasttwosuccessivequarters.
Answer: D
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

28) Recessionsarecommonlydefinedtooccur
A) wheneverunemploymentincreases.
B) whengrowthinrealGDPdecreasesfortwoconsecutivequarters.
C) whengrowthinrealGDPisnegativefortwoconsecutivequarters.
D) whentheunemploymentrateexceeds6percent.
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

29) RealGDPdecreasesduring
A) themovementfromtroughtopeak.
B) themovementfrombelowpotentialGDPbacktopotentialGDP.
C) themovementfrompeaktotrough.
D) adecreaseinunemployment.
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

552ParkinMacroeconomics,TenthEdition

30) Whenarecessionends,theturningpointthatimmediatelyfollowsiscalleda
A) trough.
B) peak.
C) depression.
D) Noneoftheaboveanswersiscorrect.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

31) Thelowpointofeconomicactivityduringabusinesscycleiscalledthe
A) trough.
B) recession.
C) peak.
D) failure.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: New10thedition
AACSB: ReflectiveThinking

32) Whattermisusedtodescribethelowestpointofabusinesscycle?
A) peak
B) trough
C) expansion
D) recession
Answer: B
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

33) Atroughisthe
A) lowerturningpointofabusinesscyclewhenanexpansionbegins.
B) lowerturningpointofabusinesscyclewhenarecessionbegins.
C) upperturningpointofabusinesscyclewhenanexpansionbegins.
D) upperturningpointofabusinesscyclewhenarecessionbegins.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth553

34) AnexpansionoccurswhenthelevelofrealGDPis
A) increasing.
B) decreasing.
C) atacyclicalpeak.
D) atacyclicaltrough.
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

35) Anexpansion
A) followsapeak.
B) isdefinedasaperiodofnegativerealGDPgrowth.
C) comesjustbeforeatrough.
D) isdefinedasaperiodofrealGDPincreases.
Answer: D
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

36) Anexpansionendswhentheeconomy
A) hitsatroughandthenentersarecession.
B) hitsapeakandthenentersarecession.
C) beginstogrowfollowingapeak.
D) hasgrownfortwoquartersinarow.
Answer: B
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

37) ThetimesduringwhichrealGDPincreasesarereferredtoas
A) contractions.
B) expansions.
C) anti-cycles.
D) corrections.
Answer: B
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

554ParkinMacroeconomics,TenthEdition

38) SupposethecountryofDingoexperiencedaneconomictroughinJanuary2011.Wecan
concludethat
A) realGDPinDingowasincreasinginJanuary2011.
B) anexpansionoccurredafterJanuary2011.
C) Dingodidnotexperiencearecessionin2010.
D) DingospotentialGDPfellin2011.
Answer: B
Topic: BusinessCycle
Skill: Conceptual
Questionhistory: Previousedition,Chapter10
AACSB: ReflectiveThinking

39) Aneconomyrecoveringfromarecession
A) movesupfromitstroughtoaperiodofexpansion.
B) movesupfromitspeaktoaperiodofexpansion.
C) movesdownfromitstroughtoaperiodofdepression.
D) movesdownfromitspeaktoaperiodofexpansion.
Answer: A
Topic: BusinessCycle
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

40) Aneconomicexpansionratherthanarecessionoccurs
A) whenthefederalbudgetisbalanced.
B) whentheunemploymentratefallsbelow5percent.
C) whengrowthinrealGDPispositive.
D) whentheunemploymentrateisnotchanging.
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

41) Apeakisthe
A) lowerturningpointofabusinesscyclewhenanexpansionends.
B) lowerturningpointofabusinesscyclewhenarecessionends.
C) upperturningpointofabusinesscyclewhenanexpansionends.
D) upperturningpointofabusinesscyclewhenarecessionends.
Answer: C
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth555

42) Intheabovefigure,thedistancebetweenpointsS andT represents


A) anexpansion.
B) atrough.
C) apeak.
D) arecession.
Answer: D
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

43) Intheabovefigure,thedistancebetweenpointsT andU represents


A) anexpansion.
B) atrough.
C) apeak.
D) arecession.
Answer: A
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

556ParkinMacroeconomics,TenthEdition

44) Intheabovefigure,arecessionbeginsatpoint________andanexpansionbeginsatpoint
________.
A) a;b
B) b;c
C) b;a
D) d;c
Answer: A
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

45) Intheabovefigure,atroughisatpoint________andapeakisatpoint________.
A) a;b
B) b;c
C) b;a
D) d;c
Answer: C
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth557

46) Intheabovefigure,whichpointrepresentstheunderuseofresources?
A) pointF
B) pointG
C) pointH
D) pointK
Answer: B
Topic: BusinessCycle
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

47) Intheabovefigure,whichpointrepresentsasituationwithsignificantshortagesoflabor,
capital,andotherresources?
A) pointF
B) pointG
C) pointI
D) pointK
Answer: A
Topic: BusinessCycle
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

558ParkinMacroeconomics,TenthEdition

48) Intheabovefigure,whichpointrepresentsaneconomywhichisatthepeakpartofabusiness
cycle?
A) pointF
B) pointG
C) pointI
D) pointK
Answer: A
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

49) Intheabovefigure,thelettersA,B,andC representwhichpositionsinthebusinesscycle?


A) peak,expansion,andrecession,respectively
B) recession,expansion,andpeak,respectively
C) expansion,peak,andrecession,respectively
D) peak,recession,andexpansion,respectively
Answer: D
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth559

50) RealGDPisnotaperfectindicatorofeconomicwelfarebecause________.
A) itincludestheundergroundeconomy
B) itincludesadirectmeasureofhealthandlifeexpectancy
C) itunderestimatesinflation
D) economicwelfaredependsonmanyfactorsnotmeasuredornotmeasuredaccuratelyby
realGDP
Answer: D
Topic: GDPandEconomicWelfareComparisons
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

51) RealGDPdoesnotshowthestateofeconomicwelfareinacountryinpartbecauseGDPomits
I. householdproduction.
II. leisuretimeavailable.
III. thequalityoftheenvironment.
A) Ionly
B) IandIII
C) IIandIII
D) I,IIandIII
Answer: D
Topic: GDPandEconomicWelfareComparisons
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

52) RealGDPcanbecriticizedasameasureofeconomicwelfarebecauseit
A) doesnotincludethevalueofproductsproducedinthehousehold.
B) doesnottakeaccountofthedegradationofenvironmentalquality.
C) doesnotincludeleisuretimeavailabletoasociety.
D) Alloftheaboveanswersarecorrect.
Answer: D
Topic: EconomicWelfareComparisons
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

53) AcountrythathasalargerealGDPperpersonmightnotnecessarilyhaveahighlevelof
economicwelfarebecauseitmayhave
A) verylittlepoliticalfreedom.
B) environmentalproblems.
C) littleleisuretime.
D) Alloftheaboveanswersarecorrect.
Answer: D
Topic: GDPandEconomicWelfareComparisons
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

560ParkinMacroeconomics,TenthEdition

54) Which,ifany,ofthefollowingcausesreportedGDPtobelessthantotaleconomicproduction?
A) theexclusionofhouseholdproduction
B) theexclusionofgovernmenttransfers
C) theinclusionofgovernmentexpenditures
D) NoneoftheabovecausereportedGDPtobelessthantotalproduction.
Answer: A
Topic: HouseholdProduction
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

55) IncalculatingGDP,householdproductionis
A) includedaspartofconsumption.
B) ignoredbecauseitisnotalargeamount.
C) notincludedbecausethereisnomarkettransaction.
D) includedunderemployeecompensation.
Answer: C
Topic: HouseholdProduction
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

56) WhichofthefollowingisNOTincludedinrealGDP?
A) productionofservices,suchastheservicesofdoctors
B) productionofgoodsthatlastmorethanoneyear,suchastelevisionsets
C) productionofgoodsthatdonotlastmorethanoneyear,suchasgasoline
D) productioninthehome
Answer: D
Topic: HouseholdProduction
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

57) Ifalargerfractionoftheadultpopulationisworkinginthemarketplace,householdproduction
A) countedinrealGDPincreases.
B) notcountedinrealGDPincreases.
C) countedinrealGDPdecreases.
D) notcountedinrealGDPdecreases.
Answer: D
Topic: HouseholdProduction
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth561

58) ReportedGDPincreaseswhen,infact,totalproductionisunchangedwhen
i. thereisashiftfromhouseholdproductiontomarketproduction.
ii. apreviouslyillegalactivityislegalized.
A) ionly
B) iionly
C) Neitherinorii
D) Bothiandii.
Answer: D
Topic: HouseholdProduction,UndergroundEconomicActivity
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

59) WhencalculatingGDP,undergroundeconomicactivityis
A) theproductionofgoodsandservicesinthehome.
B) thatportionofthetimewhenweareenjoyingleisureactivitiesandnotproducing
marketablegoods.
C) thepartoftheeconomypurposelyhidden.
D) anaspectofthequalityoflife,suchashealthandlifeexpectancy.
Answer: C
Topic: UndergroundEconomicActivity
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

60) Inpart,theundergroundeconomyexistsbecauseofthe
A) irrationalityofpeoplewhochoosetoevadetaxes.
B) hightaxrates.
C) easeofentryintotheoccupationsthatcomposeit.
D) greaterefficiencyofbartertransactionscomparedtomonetaryones.
Answer: B
Topic: UndergroundEconomicActivity
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

61) WhichofthefollowingisNOT includedinrealGDP?


A) productionofservices,suchastheservicesofhairdressers
B) productionofgoodsthatlastlessthanayear,suchasproductionofhotdogs
C) productionthattakesplaceintheundergroundeconomy
D) productionofgoodsthatlastmorethanayear,suchasapairofrollerblades
Answer: C
Topic: UndergroundEconomicActivity
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

562ParkinMacroeconomics,TenthEdition

62) TheundergroundeconomyexistsforallofthefollowingreasonsEXCEPTthe
A) productionofillegalgoods.
B) avoidanceoftaxes.
C) desiretomaintainaccuraterecordsofeconomictransactions.
D) avoidanceofgovernmentregulation.
Answer: C
Topic: UndergroundEconomicActivity
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

63) Becausepollutionreduceseconomicwelfare,onthiscountrealGDPasmeasured
A) decreasesaspollutionincreases.
B) increasestotakeintoaccounttheexpendituresthatwillbemadeinthefuturetocleanup
thepollution.
C) overstateseconomicwelfare.
D) understateseconomicwelfare.
Answer: C
Topic: EnvironmentalQuality
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

64) InthepostWorldWarIIperiod,considerablegrowthintotalproductiontookplaceinthe
UnitedStates.Butatthesametime,businessesweredumpingtheirwasteintotheGreatLakes
withminimalcosttothemselves,significantlypollutingthebodiesofwaterasaresult.This
occurrenceisanexamplewhere
A) realGDPgivesanoverlypositiveviewofeconomicwelfare.
B) realGDPgivesanoverlynegativeviewofeconomicwelfare.
C) investmentwouldhavebeenabettermeasureoftotalproduction.
D) thepollutioncountsasafinalgood.
Answer: A
Topic: EnvironmentalQuality
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

65) WhichofthefollowingwouldleadGDPtooverstate economicwelfare?


A) theexistenceofhome-cookedmeals
B) restaurantworkersthatunder-reporttipincome
C) aself-employedCPAwhotakesalongerthannormalvacation
D) electricutilitiesthatswitchtoburningcoalbecauseofhighernaturalgaspricesand
therebycreatemoreacidrainpollution
Answer: D
Topic: EnvironmentalQuality
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth563

66) PurchasingpowerparitypricesareusedtoconstructGDPdatathat
A) donotomittheundergroundeconomy.
B) canbeusedtomakemorevalidcomparisonsbetweenonecountryandanother.
C) isapropermeasureofeconomicwelfare.
D) adjustfordifferencesinpopulation.
Answer: B
Topic: PurchasingPowerParityPrices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

67) IfwecomparetheU.S.GDPandtheChineseGDP,
A) realGDPperpersonisaboutthesameinthetwocountries.
B) U.S.realGDPperpersonislessthanChinasrealGDPperpersononceweadjustfor
currencydifferences.
C) ChinasrealGDPperpersonislessthanrealGDPperpersonintheUnitedStates.
D) realU.S.GDPperpersonwasmuchlargerthanChinasrealGDPperpersonwhen
purchasingpowerparitypricesareusedbutislessthanChinasrealGDPperperson
whenexchangeratepricesareused.
Answer: C
Topic: PurchasingPowerParityPrices
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

68) Theuseofpurchasingpowerparityprices
A) decreasestherealGDPperpersonstatisticspublishedbytheInternationalMonetary
Fund.
B) weakensthevalidityofcrosscountrycomparisonsofeconomicwelfare.
C) increasestheamountbywhichU.S.GDPislargerthanthatofanyothernation.
D) accountsfordifferencesinthepricesofthesamegoodsindifferentcountrieswhen
measuringrealGDP.
Answer: D
Topic: PurchasingPowerParityPrices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

69) Pollutionisaby-productofsomeproductionprocesses,soonthiscountrealGDPasmeasured
A) isadjusteddownwardtotakeintoaccountthepollution.
B) isadjustedupwardtotakeintoaccounttheexpendituresthatwillbemadeinthefutureto
cleanupthepollution.
C) tendstooverstateeconomicwelfare.
D) tendstounderstateeconomicwelfare.
Answer: C
Topic: StudyGuideQuestion,EnvironmentalQuality
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

564ParkinMacroeconomics,TenthEdition

70) WhichofthefollowingisNOTareasonthatrealGDPisapoormeasureofanationseconomic
welfare?
A) RealGDPomitsmeasuresofpoliticalfreedom.
B) RealGDPdoesnottakeintoaccountthevalueofpeoplesleisuretime.
C) RealGDPdoesnotincludetheundergroundeconomy.
D) RealGDPovervalueshouseholdproduction.
Answer: D
Topic: StudyGuideQuestion,HouseholdProduction
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

71) WhichofthefollowingstatementsaboutthecomparisonbetweenGDPinChinaandinthe
UnitedStatesiscorrect?
A) UsingtheexchangeratetovalueChinasGDPindollarsshowsthatChinasGDPper
personexceedstheGDPperpersonintheUnitedStates.
B) UsingpurchasingpowerparitypricestovalueChinasGDPindollarsshowsthatChinas
GDPperpersonexceedstheGDPperpersonintheUnitedStates.
C) ChinasGDPperpersonishigherusingpurchasingpowerparitypricesratherthanthe
exchangeratewhenvaluingChinasGDPindollars.
D) Noneoftheaboveanswersarecorrectbecausetheyareallfalsestatements.
Answer: C
Topic: StudyGuideQuestion,InternationalComparisons
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

72) Whatweproduceduringourworkingtimeis________aspartofGDPandtheenjoymentwe
gainfromourleisuretimeis________aspartofGDP.
A) included;notincluded
B) included;included
C) notincluded;included
D) notincluded;notincluded
Answer: A
Topic: GDPandEconomicWelfareComparisons
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth565

4NewsBasedQuestions
Asthecreditcrisisunfoldedoverthepastyear,oneofthefewcertaintiesintheglobaleconomyseemedto
beChinasabilitytoploughonregardlessofdouble-digitgrowthrates...The...crisishasalsofocused...on
theneedtoupdateagrowthmodelthat...isstilldependentonassemblinggoodsforexportwithoutadding
muchvalueandonheavyindustriesthatcreatepollution.Chinesecompanieshavecontinuedtofindnew
foreignmarketsfortheirproducts...severalotherfactorspointtoaslowingpropertymarket...productionof
steel,cementandairconditionerswasdown...Retailsaleshaverisenby23percentineachofthelasttwo
months.
BeijingsBurden,www.FT.com,byGeoffDyer,Sept.23,2008
1) Accordingtothearticle,________areexpectedtocontribute________toChinasrealGDPin
2008.
A) exportsandconsumption;positively
B) consumptionandgovernmentspending;negatively
C) exportsandinvestment;negatively
D) rentalincomeandinvestment;negatively
Answer: A
Topic: GDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

2) Accordingtothearticle,________canbeexpectedto________thisyear.
A) exports;increase
B) consumption;decrease
C) imports;decrease
D) netinterestincome;decrease
Answer: A
Topic: GDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

3) Accordingtothearticle,________isexpectedtoincreaseandaddtoChinas________
componentofGDP.
A) retailsales;consumption
B) retailsales;investment
C) rentalincome;investment
D) rentalincome;exports
Answer: A
Topic: GDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

Copyright2012PearsonEducation,Inc.

566ParkinMacroeconomics,TenthEdition

Canadaseconomyexpandedby...0.1percentinthesecondquarter...furtherevidencethattheeconomyhas
stalled...followingafirstquarterslipingrossdomesticproduct.Thesecondquarterfiguresfellwellbelow
forecastsofa0.7percentgrowthinrealGDP.Exports....fellforthefourthconsecutivequarter.The
accumulatinggloomisincreasinglydiscouragingbusinessinvestment.Consumerspendingremainsstrong
andcorporateprofitswereattheirhighestsince2004.Thesourcesofstrengthinthesecondquarterare
clearlyunsustainable,saidSalGautieri,senioreconomistatBMOcapitalmarkets.
CanadaAvoidsFallintoRecession,www.FT.com,byChristopherMason,August30,2008

4) Accordingtothearticle,thebestdescriptionofCanadaspositioninthebusinesscycleis
A) atapeak
B) atatrough
C) inanexpansion
D) inarecession
Answer: A
Topic: BusinessCycle
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

5) Accordingtothearticle,________in________havecontributedtoCanadas________changein
realGDP.
A) increases;consumptionandexports;expected
B) decreases;exportsandinvestment;unexpected
C) increases;consumptionandinvestment;unexpected
D) decreases;exportsandgovernmentspending;expected
Answer: B
Topic: GDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

6) Itisestimatedthatin2007,Mexicohadapopulationof110millionandBrazilhadapopulation
of190million.Atthesametime,MexicosGDPwas$1trillionwhileBrazilswas$1.31trillion.
Thesedatashowthat
A) BrazilhadahealthiereconomythandidMexico.
B) MexicosGDPperpersonwaslowerthanwasBrazilsGDPperpersonin2007.
C) MexicosGDPperpersonwas$9090in2007.
D) BrazilsGDPperpersonwas$5300in2007.
Answer: C
Topic: GDPGrowthRate
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth567

7) Itisestimatedthatin2007,Mexicohadapopulationof110millionandGDPof$1trillion.In
2006,Mexicospopulationwas104millionandGDPwas$839billion.PerGDPperson________
by________between2006and2007inMexico.
A) increased;$1038
B) increased;5percent
C) decreased;$2013
D) decreased;5percent
Answer: A
Topic: GDPGrowthRate
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

8) ThefollowingdatadescribeMexicoseconomyin2007.
Governmentspending
$210billion
Investment
$210billion
Exports
$272billion
Imports
$283billion
GDP
1trillion
Population
110million
Fromthedata,wecanconcludethat________inMexicoin2007.
A) Consumptiontotaled$591billion
B) Netexportstotaled-$11billion.
C) GDPperpersonequalled$2000
D) ImportswerethelargestcomponentofGDP
Answer: A
Topic: GDP
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

9) ThefollowingdatadescribeFranceseconomyin2008.
Consumption
234billioneuros
Governmentexpenditure
93billioneuros
Investment
88billioneuros
Exports
128billioneuros
Imports
137billioneuros
Fromthedata,wecanconcludethatinFrance
A) netexportstotaled-11billioneuros.
B) GDPequaled424billioneuros.
C) GDPequaled680billioneuros.
D) Netexportstotaled265billioneuros.
Answer: A
Topic: GDP
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

568ParkinMacroeconomics,TenthEdition

10) ThefollowingdataareestimatesdescribingIrelandseconomyin2006and2007(inmillionsof
euros,inconstantprices):
2006
2007
Consumption
84,000
89,000
Governmentexpenditure
24,000
26,000
Investment
48,000
48,000
Exports
142,000
151,000
Imports
123,000
128,000
Subsidies
1,800
1,900
Taxes
500
500
IrelandsrealGDPin2007was________millioneuros.

A) 442,000
B) 186,000
C) 188,400
D) 163,000
Answer: B
Topic: GDP
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

11) ThefollowingdataareestimatesdescribingIrelandseconomyin2006and2007(inmillionsof
euros,inconstantprices):
2006
2007
Consumption
84,000
89,000
Governmentexpenditure
24,000
26,000
Investment
48,000
48,000
Exports
142,000
151,000
Imports
123,000
128,000
Subsidies
1,800
1,900
Taxes
500
500
In2007,Irelandsnetexportswas________millioneuros.
A) 23,000
B) -23,000
C) 279,000
D) 149,100
Answer: A
Topic: GDP
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth569

12) ThefollowingdataareestimatesdescribingIrelandseconomyin2006and2007(inmillionsof
euros,inconstantprices):

Consumption
Governmentexpenditure
Investment
Exports
Imports
Subsidies
Taxes

2006
84,000
24,000
48,000
142,000
123,000
1,800
500

2007
89,000
26,000
48,000
151,000
128,000
1,900
500

WhichofthefollowingistrueregardingIrelandseconomy?
A) ThechangeinGDPfrom2006to2007representedapeakinthebusinesscycle.
B) GDPdecreasedfrom2006to2007.
C) Netexportsdecreasedfrom2006to2007.
D) Consumptionwas48percentofIrelandsGDPin2007.
Answer: D
Topic: GDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

LifeexpectancyisexceptionallyhighinJapan.Scoresforpoliticalfreedomandcivillibertiesapproachthose
ofpeercountriesinEurope...equalityofopportunityisextremelyweak.Thecountryalsopossessesoneof
thelongerworkingweeks.JapansGDPwasestimatedtobe$4.2trillion(purchasingpowerparity)andthe
populationwas127.4million.
Drivenbyitsattractiveclimate,BrazilperformssubstantiallybetteronLifeSatisfactionthanMaterial
Wealth.HighinternationaldemandforBrazilscommoditiesandrawmaterialshasproducedasustained
economicexpansionsince2004,whichinturnhasledtojobcreation,wagegrowthandrelativelylow
inflation.Braziliansreportthattheycontroltheirownlivestoasubstantialdegree.BrazilsGDPwas
estimatedtobe$1.7trillion(purchasingpowerparity)and190millionin2006.
www.prosperity.com
13) Accordingtothearticle,wecanconcludethatthestandardofliving
A) ishigherinBrazilbecauseitscitizensfeelmorecontrolovertheirlivesandhave
experiencedjobandwagegrowth.
B) ishigherinJapanbecausetheirlifeexpectancyislonger.
C) ishigherinJapanbecauseitsGDPishigher.
D) mightbehigherinJapanbecauseithasahigherpercapitarealGDPbutotherfactorssuch
asBrazilianssatisfactionwiththeirlivesandeconomicgrowthshouldbeconsidered
whendeterminingeconomicwellbeing.
Answer: D
Topic: GDPandEconomicWelfareComparisons
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

Copyright2012PearsonEducation,Inc.

570ParkinMacroeconomics,TenthEdition

14) Accordingtotheinformation,JapansrealGDPperperson
A) ishigherthanBrazilsandthereforewecandefinitelyconcludethateconomicwell-being
ishigherinJapan.
B) is$33,000.
C) islowerthanBrazils,butitsrealGDPishigherwhichmakesstandardoflivinghigherin
Japan.
D) cannotbeexpectedtochangemuchgiventheotherfactorsaffectingGDPgrowth
includingpoliticalfreedomandlifeexpectancy.
Answer: B
Topic: GDPandEconomicWelfareComparisons
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

15) TheUnitedNationsHumanDevelopmentReport(2006)rankedNorwayfirstinitsHuman
DevelopmentIndexwithGDPperpersonequalto$38,454.TheUnitedStates,withGDPper
personof$39,676,isrankedeighth.Whichofthefollowingcouldexplainthisranking?
A) Otherfactors,likelifeexpectancyandeducationarehigherinNorway.
B) NorwayhasalowerGDPthantheUnitedState.
C) TheUnitedStateshasalowerunemploymentratethandoesNorway.
D) TheUnitedStateshasahigherpopulationgrowthrate.
Answer: A
Topic: GDPandEconomicWelfareComparisons
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

16) Germaneconomicgrowthslowed...Economicgrowthslowedto0.3percentfrom0.5percent.
Expansionwasdrivenbyexports...(and)householdconsumptionadded...togrowth.As
unemploymentdeclinesanddisposableincomesincrease,householdspendingmayalsogain
momentum.
www.bloomberg.com,August23,2007
WecanconcludethattheGermaneconomy
A) isatthepeakofthebusinesscycle.
B) hasenteredtheexpansionphaseofthebusinesscycle.
C) hasslowedduetoadeclineininvestmentorgovernmentspending.
D) isintherecessionphaseofthebusinesscycle.
Answer: C
Topic: GDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth571

17) ThedatashowArgentinasGDP(usingpurchasingpowerparity)inbillionsofdollars.
Year
19901991199219931994199519961997199819992000200120022003200420052006
GDP($)182209235255277274294324340333338330300333373420470
Thedatashowthat
A) Argentinaseconomywasinarecessionfrom2004through2006.
B) Argentinaseconomywasinarecessionin2001and2002.
C) GDPperpersonmorethandoubledbetween1990and2006.
D) Argentinaseconomyreachedapeakin1996.
Answer: B
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

18) ThedatashowArgentinasGDP(usingpurchasingpowerparity)inbillionsofdollars.
Year
19901991199219931994199519961997199819992000200120022003200420052006
GDP($)182209235255277274294324340333338330300333373420470
Thedatashowthat
A) Argentinaseconomyreachedapeakin1998.
B) GDPperpersonincreasedbetween1990and2006.
C) ArgentinaspotentialGDPdoubledbetween1990and2006.
D) Argentinaseconomyenteredarecessionin2000.
Answer: A
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

19) ThefollowingdatashowUruguaysGDPusingpurchasingpowerparityinbillionsofdollars.
Year200020012002200320042005200620072008
GDP($)26.125.823.324.327.930.133.937.240.2
Usingthedata,wecanconcludethat
A) Uruguayseconomyreachedapeakin2000.
B) GDPperpersoninUruguayalmostdoubledbetween2000and2008.
C) potentialGDPinUruguaydoubledbetween2000and2008.
D) Uruguayseconomywasenteredarecessionin2008.
Answer: A
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

572ParkinMacroeconomics,TenthEdition

20) ThefollowingdatashowUruguaysGDPusingpurchasingpowerparityinbillionsofdollars.
Year200020012002200320042005200620072008
GDP($)26.125.823.324.327.930.133.937.240.2
Usingthedata,wecanconcludethat
A) thestandardoflivingdidnotchangeinUruguaybetween2000and2008.
B) Uruguayenteredarecessionin2001.
C) potentialGDPdecreasedin2001.
D) Uruguayseconomyreachedapeakin2005.
Answer: B
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

21) ThefollowingdatashowUruguaysGDPusingpurchasingpowerparityinbillionsofdollars.
Year200020012002200320042005200620072008
GDP($)26.125.823.324.327.930.133.937.240.2
Usingthedata,wecanconcludethat
A) Uruguayseconomyenteredarecessionin2005.
B) Uruguaysstandardoflivingincreasedsteadilybetween2000and2008.
C) potentialGDPmorethandoubledbetween2000and2008.
D) Uruguayseconomyreachedatroughin2002.
Answer: D
Topic: BusinessCycle
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

5EssayQuestions
1) DefineanddiscussGDP.
Answer: GDPisthemarketvalueofallfinalgoodsandservicesproducedwithinacountryina
giventimeperiod.Onlyfinalgoodsandservicesareincluded.Goodsproducedas
intermediategoodsareexcluded.Thegoodsandservicesmustbeproducedwithinthe
timeperiodunderconsiderationandsosalesofusedgoodsareexcluded.Thegoodsand
servicesalsoarethoseproducedwithinthecountry,soproductionbythecountrysfirms
thattakesplaceinaforeignnationisnotincluded.
Topic: GrossDomesticProduct
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: Communication

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth573

2) HowdoestheproductionofaU.S.firmlocatedinFranceaffectU.S.GDP?Howdoesthe
productionofaFrenchfirmlocatedinOhioaffectU.S.GDP?
Answer: U.S.GDPincludesallproductionintheUnitedStates,regardlessofwhoownsthefactors
ofproductionused.Therefore,theproductionbytheU.S.firminFrancewontbecounted
inU.S.GDPbecausetheproductiondoesnottakeplaceintheUnitedStates.However,
theproductionbytheFrenchfirmintheUnitedStateswillbecountedaspartofU.S.
GDPbecausetheproductionhastakenplaceintheUnitedStates.
Topic: GrossDomesticProduct
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

3) WhyareonlyfinalgoodsandservicesincludedinmeasuringGDP?Giveexamplestocomplete
youranswer.
Answer: WepurposelyleaveintermediategoodsorservicesoutofourcalculationofGDPsowe
dontdoublecount.ExamplesofthisarenotcountingthetiresproducedbyFirestonethat
arethensoldtoFordtobeplacedontheirnewcars.Ifwecountedthetireswhenthey
wereproducedbyFirestoneandthenalsocountedthemwhentheywerepartoftheFord,
wewouldbedoublecountingthem.
Topic: FinalGood
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

4) IseveryproductproducedintheUnitedStatesincludedinU.S.grossdomesticproduct?
Answer: No,noteveryproductproducedisincludedinU.S.GDP.Forinstance,goodsproduced
asintermediategoodsareexcluded.Onlyfinalgoodsandservicesareincluded.In
addition,GDPcountsonlygoodstradedinmarkets,sogoodsandservicesthatpeople
producefortheirownuseareexcluded.
Topic: FinalGood
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

5) Defineanddistinguishbetweenfinalgoodsandintermediategoods.
Answer: Finalgoodsarethosegoodsthatarepurchasedbytheirfinaluser.Essentially,these
goods(andservices)havebeencompletedanddonotneedtogothroughfurther
processesofcompletion.Examplesoffinalgoodsincluderestaurantmeals,lamps,
railroadengines,andbooks.Intermediategoodsandservicesaregoodsorservices
producedbyonefirm,boughtbyanother,andthenusedasacomponentinthe
manufactureofanothergoodorservice.Basically,intermediategoodsandservicesare
usedasapartofanothergoodorservice.Lumberusedbyacarpentertobuildatableor
paperusedbyapublishertopublishabookareexamplesofintermediategoods.
Topic: IntermediateGoodsandServices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

574ParkinMacroeconomics,TenthEdition

6) NeitherintermediategoodsnorusedgoodsareincludedinGDP.Explainwhythese
expendituresarenotincludedinGDP.
Answer: IntermediategoodsandusedgoodsarenotincludedinthemeasurementofGDPbecause
theydonotrepresentfinalexpendituresongoodsandservicesproducedwithinthe
relevanttimeperiod.Intermediategoodsareinputsusedintheproductionoffinalgoods
andservices.TocountthemtwicewouldbedoublecountingandinflatethelevelofGDP.
UsedgoodsalreadyhavebeencountedinGDPduringtheyearinwhichtheywere
produced.Theywerenotproducedinthecurrenttimeperiodandthereforearenot
includedinGDP.
Topic: IntermediateGoodsandUsedGoods
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

7) Whatarethecategoriesoftotalexpenditure?
Answer: Therearefourcategories:Consumptionexpenditure,spendingbyhouseholds;
investment,spendingbyfirmstobuynewcapitalequipmentoraddtoinventories;
governmentexpendituresongoodsandservices,spendingbyalllevelsofthe
governmenttobuygoodsandservices;andnetexportsofgoodsandservices,which
equalstheexportsofgoodsandservicesminustheimportsofgoodsandservices.
Topic: TotalExpenditure
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

8) Howdofirmsandhouseholdsinteractwithinthecontextofthecircularflowmodel?
Answer: Householdsaretheownersofthefactorsofproduction.Firmspurchasethesefactorsin
thefactormarket.Theyusethesefactorstoproducegoodsandserviceswhicharesoldto
householdsinthegoodsmarket.Householdsarepaidfortheservicesofthefactorsof
productionandusethisincometopayforthegoodsandservices.
Topic: CircularFlow
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

9) Whatistherelationshipshownbythecircularflowamongincome,totalexpenditure,andGDP?
Answer: Theyareallequal.Thevalueofproduction,whichisGDP,equalsincomebecausefirms
payfactors(asincome)alltherevenuetheyreceivefromsellingthegoodsandservices
theyproduce(GDP).Next,therevenuethatfirmsreceivefromsellingthegoodsand
servicestheyproduce(GDP)isequaltowhatisspentasexpendituresonthegoodsand
services.(totalexpenditure).
Topic: CircularFlow
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth575

10) Usetheideaofthecircularflowdiagramtoexplainwhythevalueofproductionequalstotal
incomeequalstotalexpenditure.
Answer: Thebasicpointisthatnothingescapesthesystem.Firmsreceivethevalueoftheir
productionintheformofrevenue.Withthisrevenue,theypayforthefactorsof
productiontheyhireandwhatisleftoverafterpayingtheircostsisprofit,whichispaid
tothehouseholdsthatownthefirms.Thusthevalueofproductionequalstotalincome.
Theseincomesflowfromfirmstohouseholds.Householdsthenallocatetheirincometo
taxes,saving,andconsumption.Taxesarecollectedandspentbythegovernment.Saving
byhouseholdsisspentasinvestmentbyfirmsafterbeingcycledthroughthebanking
system.Thustotalexpenditureequalsthevalueoftotalincome,whichequalsthevalueof
productionbyfirms.
Topic: CircularFlow
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

11) Whatisthedistinctionbetweengrossinvestmentandnetinvestment?
Answer: Grossinvestmentisthetotalspendingoncapitalgoods.Netinvestmentequalsgross
investmentminusdepreciation.Fromoneyeartothenext,thecapitalstockincreasesby
theamountofnetinvestment.
Topic: CapitalandInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

12) Explainhowgrossinvestment,depreciation,netinvestment,andthecapitalstockarerelated.
Answer: Thechangeinthecapitalstockequalsnetinvestmentandnetinvestmentequalsgross
investmentminusdepreciation.
Topic: CapitalandInvestment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

13) Whatistherelationshipbetweengrossinvestment,netinvestment,anddepreciation?Which
measuresthechangeinthecapitalstock?
Answer: Grossinvestmentminusdepreciationequalsnetinvestment.Grossinvestmentisallthe
investmentmadeduringtheyear.Depreciationisthewearandtearoncapitalfromits
useandobsolescence.Thedepreciationpartofgrossinvestmentgoestoreplaceold,
wornoutcapitalandsonetinvestmentisthechangeinthecapitalstock.
Topic: CapitalandInvestment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

576ParkinMacroeconomics,TenthEdition

14) Explaintherelationshipamongthecapitalstock,grossinvestment,netinvestment,and
depreciation.
Answer: Thecapitalstockisthetotalquantityofplant,equipment,buildingsandinventories.
Someofthiscapitalstockisalwaysdepreciatingorwearingout.Duringayearafirmwill
purchasenewcapital.Theamountofcapitalpurchasedisgrossinvestment.Theamount
ofgrossinvestmentminustheamountofdepreciationduringayearisnetinvestment.So
netinvestmentisthechangeinthecapitalstockfromoneperiodtothenext.
Topic: CapitalStockandInvestment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

15) Explainthedifferencebetweenthecapitalstock,grossinvestment,depreciation,andnet
investment.
Answer: Thecapitalstockisthetotalquantityofplant,equipment,buildings,andinventories.
Grossinvestmentisthepurchaseofnewcapital.Depreciationisthewearingoutand
scrappingofcapital.Netinvestmentequalsgrossinvestmentminusdepreciation.The
changeinthecapitalstockfromoneperiodtothenextequalsnetinvestment.
Topic: CapitalandInvestment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

16) Definegrossinvestmentandnetinvestment.Discusstherelationshipbetweengrossinvestment
andnetinvestment.
Answer: Grossinvestmentisthetotalamountspentonnewcapitalgoodstoincreasethequantity
ofcapitalandreplacethedepreciatedcapital.Netinvestmentistheamountspentonnew
capitalthatexceedsthevalueofthedepreciatedcapitalor,inotherwords,netinvestment
equalsgrossinvestmentminusdepreciation.Netinvestmentisequaltothechangeinthe
capitalstock.
Topic: Investment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

17) Whenacompanysdepreciationislargerthanitsgrossinvestment,netinvestmentbecomes
negativeandthefirmscapitalstockdecreases.Isthepreviousstatementcorrectorincorrect?
Explainyouranswer.
Answer: Thestatementiscorrect.Netinvestmentequalsgrossinvestmentminusdepreciation.If
depreciationislargerthangrossinvestment,netinvestmentwillbenegative.Net
investmentisthechangeinthecapitalstock,andsothecompanyscapitalstock
decreases.Essentially,becausedepreciationislargerthanthecompanysgross
investment,thecompanyisnotbuyingenoughcapitaltoreplacethecapitalthat
depreciated.Asaresult,thetotalamountofthecompanyscapitaldecreases.
Topic: Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth577

18) Investment,asincludedinGDP,consistsofwhat?
Answer: Investmentisthepurchaseofnewcapitalgoodssuchastools,instruments,machines,
buildings,andadditionstoinventories.Investmentdoes notincludethepurchaseorsale
ofstocksandbonds.
Topic: Investment
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

19) HowarechangesininventorytreatedinGDP?
Answer: ChangesininventoryarepartoftheinvestmentcomponentofGDP.So,ifDellproduces
100,000computersthisyearandsells95,000,the5,000unsoldcomputersthatareadded
toDellsinventoryarepartoftheinvestmentcomponentofGDPforthisyear.
Topic: ExpenditureApproach,Investment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

20) TocalculateGDP,economistsbeginwithtotalincomeearnedandthensubtracttotal
expenditurebythefoursectorsoftheeconomy.Istheprevioussentencetrueorfalse?Explain
youranswer.
Answer: Thesentenceisfalse.TocalculateGDP,economistscanbeginwithtotalincomeandthen
makeafewadjustmentsbuttheydonotsubtracttotalexpenditure.Alternatively,
economistscansumtotalexpenditurebytheeconomysfoursectors,butthissummation
isGDP.
Topic: MeasuringGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

21) ListthecomponentsoftheexpenditureapproachtomeasuringGDP.
Answer: TheexpenditureapproachmeasuresGDPbyaddingfinalexpenditures,sothe
componentsarepersonalconsumptionexpenditure,grossprivateinvestment,
governmentexpendituresongoodsandservices,andnetexports.
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

578ParkinMacroeconomics,TenthEdition

22) ListandcomparethefourcomponentsoftheexpenditureapproachtocalculatingGDP.
Answer: The4partscanbesummarizedaccordingtotheformulaGDP= C + I +G+(X-M).The
firstpart,C,isconsumptionexpenditure,whichmeasureshouseholdspendingandisthe
largestcomponentaccountingforaround70percentofGDP.Thenextcategory, I,is
investmentandreferstothepurchaseofnewcapital,thepurchaseofnewhomesand
changesininventories.Thisfluctuatesagreatdealbutgenerallyaccountsfor15to20
percentofGDP.NextisG,whichgovernmentexpenditureongoodsandservices.This
componentincludespurchasesbyalllevelsofgovernmentonnewgoodsandservices
andisabout20percentofGDP.Thefinalcategory,(X-M),isnetexports.Init,exports
areaddedandimportsaresubtracted.ThiscomponentistypicallynegativeintheUnited
Statesbecausewetypicallyrunatradedeficit.Itisgenerallyaround-1to-5percentorso
ofGDP.
Topic: ExpenditureApproachtoGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

23) ExplainhowGDPismeasuredaccordingtotheexpenditureandincomeapproaches.
Answer: GDPismeasuredusingtheexpenditureapproachandtheincomeapproach.The
expenditureapproachusesthestreamsofspendingandaddstogetherthetotal
expenditure,orspending,onfinalgoodsandservices.Thustheexpenditureapproach
calculatesthesumofconsumptionexpenditure,investment,governmentexpenditureon
goodsandservices,andnetexports.Theincomeapproachusesanotherofthecircular
flowstocalculateGDP.Theincomeapproachaddstogetherallsourcesofincomeand
thenincorporatesafewadditionaladjustments.Thustheincomeapproachcalculatesthe
sumofcompensationofemployees,netinterest,rentalincomeofpersons,corporate
profits,andproprietorsincome.Thesumisnetdomesticproductatfactorcost.To
changethissumtoGDP,whichiscalculatedatmarketpricesratherthanfactorcosts,and
whichisthegrossproductratherthannetproduct,indirecttaxesareaddedandsubsidies
subtractedandthendepreciationisadded.Anystatisticaldiscrepancyisaddedto(or
subtractedfrom)GDPcalculatedusingtheincomeapproach.
Topic: ExpenditureApproachandIncomeApproach
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: Communication

24) HowdoestheincomeapproachmeasureGDP?
Answer: Theincomesapproachaddsthecompensationofemployees,netinterest,rentalincome,
corporateprofitsandproprietorsincometogivenetdomesticincomeatfactorcost.Then
indirecttaxesanddepreciationareadded.Finally,subsidiesaresubtractedtoobtain
GDP.
Topic: IncomeApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth579

25) Whatmustbedonetonetdomesticproductatfactorcostinordertotransformittogross
domesticproduct?Explainwhytheseadjustmentsarenecessary.
Answer: Severaladjustmentsmustbemadetonetdomesticproductatfactorcostinordertosetit
equaltoGDP.First,indirecttaxesmustbeaddedandsubsidiesmustbesubtracted.These
changesarenecessarybecauseGDPismeasuredusingmarketpriceswhereasnet
domesticproductatfactorcostmeasureswhatthegoodsandservicescosttoproduce.
Thepricecanbedifferentthanthecostwhentherearetaxesandsubsidiespresent.Thus
taxesmustbeaddedtothecostandsubsidiessubtractedinordertodeterminetheprice
thatwasactuallypaid.(Forinstance,aDVDmightcost$20buta$1salestaxmakesthe
price$21.)Then,thesecondadjustmentisthatdepreciationalsoneedstobeadded.
Depreciationisthewearandtearoncapitalwhenitisusedandwhenitbecomes
obsolete.GDPincludesexpenditureoninvestmentandsomeinvestmentisusedto
replacethecapitalstockthathasdepreciated.So,whencalculatingGDPusingtheincome
approach,depreciationmustbeincluded.Butdepreciationis notincludedinnetdomestic
productatfactorcostbecausethatamountincludesonlypaymentsmade(asincome)to
theinputsthathelpedproducetheproductsandnopaymentismadeforthedepreciation
ofcapital.Sotheadditionofdepreciation(aswellastheadjustmentsfortaxesand
subsidies)isnecessaryinordertoconvertnetdomesticproductatfactorcostintoGDP.
Topic: IncomeApproach,Adjustments
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

26) Severaladjustmentsmustbemadetonetdomesticproductatfactorcostinordertocalculate
GDP.Oneoftheseadjustmentsisaddingdepreciation.Whatisdepreciationandwhymustitbe
added?
Answer: Depreciationisthewearandtearofcapitalwhenitisusedandwhenitbecomesobsolete.
GDPincludesexpenditureoninvestmentandsomeinvestmentisusedtoreplacethe
capitalstockthathasdepreciated.So,whencalculatingGDPusingtheincomeapproach,
depreciationmustbeincluded.Butdepreciationisnotincludedinnetdomesticproduct
atfactorcostbecausethatincludesonlypaymentsmade(asincome)totheinputsthat
helpedproducetheproductsandnopaymentismadeforthedepreciationofcapital.
Hencedepreciationmustbeaddedtonetdomesticproductatfactorcostinorderto
calculateGDP.
Topic: IncomeApproach,Depreciation
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

580ParkinMacroeconomics,TenthEdition

27) WhatisthedifferencebetweenrealandnominalGDPandwhydoeconomistsmakethis
distinction?
Answer: RealGDPisameasureofthefinalgoodsandservicesproducedinayearvaluedat
constantprices.NominalGDPisthefinalgoodsandservicesproducedinayearvalued
atthepricesthatexistedduringtheyear.Economistsmakethedistinctionbetweenreal
GDPandnominalGDPbecausenominalGDPchangesfortworeasons:Whenthe
productionofgoodsandserviceschangesandwhenthepricesofthegoodsandservices
change.Economistswanttobeabletodistinguishbetweenchangesbroughtaboutby
productionchangesandchangesbroughtaboutbypricechanges.RealGDPallows
economiststomakethisdistinction.Inparticular,byusingpricesthatareconstant,a
changeinrealGDPrepresentsachangeintheproductionofgoodsandservicesand
factorsoutthechangeinprices.ThusrealGDPremovestheeffectfromchangesinprices
andtherebyrevealsthechangeintheunderlyingproductionofgoodsandservices.
Topic: RealandNominalGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

28) IsitpossiblefornominalGDPtoincreasewhilerealGDPdoesnotchange?
Answer: Yes,itispossiblefornominalGDPtoincreasewhilerealGDPdoesnotchange.Nominal
GDPchangesifeitherpricesorproductionchange,whilerealGDPchangesonlyif
productionchanges.Ifproductiondoesnotchangewhilethepricesofthegoodsand
servicesincrease,realGDPdoesnotchangewhilenominalGDPincreases.
Topic: RealandNominalGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

29) CannominalGDPeverbelessthanrealGDP?
Answer: Yes,nominalGDPcanbelessthanrealGDP.Ifpricesgenerallyfallfromoneperiodto
thenext,thennominalGDPislessthanrealGDP.However,intheU.S.economy,because
pricesgenerallyrise,nominalGDPtypicallyisgreaterthanrealGDP(exceptinthebase
period.)But,thereisnoeconomiclawthatstatesthatpricesmustgenerallyriseandso
thereisnonecessityfornominalGDPtobelargerthanrealGDP.
Topic: RealandNominalGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

30) WhatistherelationshipbetweenactualandpotentialrealGDP?
Answer: RealGDPequalspotentialGDPwhenallresourcesarefullyemployedandthereareno
shortagesthatleadtoinflation.RealGDPcanbegreaterthanpotentialGDPandcanbe
lessthanpotentialGDP.Duringabusinesscycle,realGDPcyclesaroundpotentialGDP.
Duringanexpansion,realGDPrisesabovepotentialGDPandduringarecessionreal
GDPfallsbelowpotentialGDP.
Topic: ActualandPotentialGDP
Skill: Recognition
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth581

31) ExplaintherelationshipbetweenrealGDPandpotentialGDPduringthetwophasesofthe
businesscycle.
Answer: DuringanexpansionthelevelofrealGDPeventuallysurpassespotentialGDP,reachesa
peakandsubsequentlyfallsbelowpotentialGDPduringarecessioneventuallyreaching
atrough.
Topic: ActualandPotentialGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

32) ExplaintherelationshipbetweenpotentialGDPandrealGDPintheUnitedStatessincethe
early1960s.Youdonotneedtotellwhathappenedduringanyspecificyear;justdescribethe
generalrelationship.
Answer: PotentialGDPhasgrownovertheperiod,albeitataslowerrateoverthepast3decades,
whilethelevelofrealGDPhasfluctuatedaroundpotentialGDPthroughout.
Topic: ActualandPotentialGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

33) Whatisabusinesscycle?
Answer: Thebusinesscycleistherecurrentbutirregularupwardanddownwardmovementsin
productionandjobs.Adownwardmovementiscalledarecessionandanupward
movementiscalledanexpansion.Atthetopofthecycle,whenanexpansiongivesway
toarecession,isapeak.Atthebottomofthecycle,whenarecessiongiveswaytoan
expansion,isatrough.
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

34) Listandexplainthetwophasesandtwoturningpointsofthebusinesscycle.
Answer: TheeconomyisdefinedasbeinganexpansionwhenrealGDPisincreasingandina
recessionwhenrealGDPdecreasesforatleasttwoconsecutivequarters.Between
expansionandrecessiontheeconomyreachesapeakdefinedasalocalmaximuminthe
levelofrealGDP.AtroughistheoppositeofapeakwhererealGDPhitsalocal
minimumastheeconomygoesfrombeinginarecessiontobeinginanexpansion.
Topic: BusinessCycle
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

35) Whatisarecession?
Answer: ArecessionisaperiodoftimeduringwhichrealGDPdecreases,sothatthegrowthrate
ofrealGDPisnegative,foratleasttwosuccessivequarters.Arecessionoccursstartsafter
apeakinthebusinesscycleandendsbeforeatroughinthebusinesscycle.Duringa
recession,realGDPfallsbelowpotentialGDP.
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

582ParkinMacroeconomics,TenthEdition

36) Explainthebusinesscyclebydescribingthephasesandturningpoints.
Answer: Thebusinesscyclehastwophases,theexpansionwhereGDPisincreasingandthe
recessionwhereGDPisdecliningforatleasttwoconsecutivequarters.Therearetwo
turningpoints,thepeak,whereanexpansionendsandarecessionbegins,andthe
trough,wherearecessionendsandanexpansionbegins.
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

37) WhydoesrealGDPhavelimitationsindeterminingeconomicwelfare?
Answer: Firsteconomicwelfareisabroadconceptofeconomicwell-beingthatentailsallgoods
andservicesnotjustthosemeasuredbyGDP.Theseincludeproductioninthehomeand
withintheundergroundeconomy.Secondly,itemssuchasgoodhealth,longlife
expectancyandleisuretimeareallaspectsthatarehighlydesirableandcountfor
economicwelfareyetarenotmeasuredbyGDP.Lastly,environmentalqualityishighly
desiredyetrealGDPgrowthcouldactuallyreducethequalityoftheenvironment.Sofor
allthesereasons,economicgrowthisnottotallydeterminedbyrealGDP.
Topic: EconomicWelfareComparisons
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

38) ExplainhowoureconomicwelfaredependsuponourlevelofrealGDPperpersonbutthere
mightnotbeaone-to-onerelationshipbetweeneconomicwelfareandrealGDPperperson.
Giveexamplesofthingsthatcaneffectonebutnottheother.
Answer: AlthoughGDPhasasignificantimpactonoureconomicwelfare,itisnotaperfect
measureofeconomicwelfare.GDPomitssomefactorsthataffectoureconomicwelfare.
GDPdoesnotincludehouseholdproduction,allthetasksperformedaroundthehouse.It
omitsundergroundproduction,thepartoftheeconomyhiddenfromthegovernment.
RealGDPdoesnotincludethevalueofpeoplesleisuretime.And,GDPdoesnotmake
allowancesforenvironmentalquality,healthandlifeexpectancy,orpoliticalfreedomand
socialjustice.Allofthesefactorsinfluencethequalityofourlifeandhenceoureconomic
welfare.Indeed,occasionallyachangewillaffectGDPandeconomicwelfareindifferent
directions.Forinstance,ifpeopledecidetheywantmoreleisureandhenceretireearly,
GDPwilldecreasebecausefewerpeopleareworking,buteconomicwelfarewillincrease.
Or,ifthereisanincreaseinproductionthatcreatesmassiveamountsofpollution,GDP
increaseseventhougheconomicwelfarelikelydecreases.
Topic: EconomicWelfareComparisons
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth583

39) IfcountryAhasahigherlevelofrealGDPperpersonthancountryB,thenpeopleinCountry
AmustenjoyahigherstandardofeconomicwelfarethanpeopleinCountryB.Isthisstatement
trueorfalseandexplainyouranswer.
Answer: Thestatementisfalse.FactorsotherthanrealGDPperpersonaffecteconomicwelfare.
Forinstance,factorssuchashouseholdproduction,undergroundproduction,leisure
time,andenvironmentalqualityallaffecteconomicwelfareandallareomittedfromreal
GDPperperson.Inaddition,economicwelfareisinfluencedbyhealthandlife
expectancyaswellasbythenationspoliticalfreedomandsocialjustice,noneofwhichis
measuredbyrealGDPperperson.AlthoughrealGDPperpersonisanimportantfactor
indeterminingacountryseconomicwelfare,itisnottheonlyfactor.
Topic: EconomicWelfareComparisons
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

40) ListanddiscussvarioustypesofgoodsandservicesomittedfrommeasuredGDP.
Answer: Householdproduction,suchaspreparingmealsandtakingcareofchildren,are
productiveactivitiesbutdonotinvolvemarkettransactions.Therefore,household
productionisomittedaspartofGDP.Undergroundproduction,suchasworkingforcash
toavoidtaxesorengaginginillegalactivities,arenotreportedtothegovernmentand
hencearenotcountedaspartofGDP.Leisuretimeandpreservingandimprovingthe
naturalenvironmentarenotproductionpersebutareclearlyeconomicgoods.Theyare
notcountedaspartofGDPbecauseitishardtoquantifyandputamonetaryvalueon
them.
Topic: OmissionsfromGDP
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

41) WhatwouldhappentomeasuredGDPifmorepeoplestartedhiringworkerstodohousechores
suchascookingandcleaning?
Answer: GDPisthevalueofthefinalgoodsandservicesthatareproducedinaneconomyovera
specifiedtimeperiod.However,GDP,asmeasured,doesnotincludethevalueof
householdproductionpeopledoforthemselvesaroundtheirhomes.Thereforeifyou
washyourcaratyourhomeorapartment,thevalueofthecarwashingisnotincludedin
GDP.Howeverifyouhiredsomeonetowashyourcaratyourhomeorapartment,the
valueofthecarwashingwouldbeincludedinGDP.Thusifmorepeoplestartedhiring
workerstodohouseholdchores,measuredGDPwouldincrease.
Topic: HouseholdProduction
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: Communication

Copyright2012PearsonEducation,Inc.

584ParkinMacroeconomics,TenthEdition

42) Whatisundergroundproduction?IsitincludedinGDP?
Answer: Undergroundproductionistheproductionofgoodsandservicesthatremainhidden
fromthegovernment.Undergroundproductionincludestheproductionofillegalgoods
andservicesandtheproductionoflegalgoodsandservicesbutinawaythatavoids
taxesorregulations.UndergroundproductionisnotincludedinGDP.
Topic: GDPandUndergroundEconomicActivity
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

43) ExplainhowundergroundeconomicactivityaffectsmeasurementofGDP.
Answer: Theundergroundeconomyaretransactionshiddenfromthegovernment,eitherbecause
theyareillegalortoavoidtaxes.Becausetheundergroundeconomyishiddenfromthe
government,itisnotincludedinGDPandsoGDPissmallerthanitotherwisewouldbe.
Topic: GDPandUndergroundEconomicActivity
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

44) Whilestudyingwithyourfriend,yourfriendstates,OurleisuretimeincreasesGDPbutlowers
oureconomicwelfarebecauseitreducestheamountofgoodsandserviceswecanconsume.Is
yourfriendsstatementcorrect?
Answer: Yourfriendsassertionisincorrectontwocounts.First,leisuretimedoesnotincrease
GDP.Indeed,bytakingtimeawayfromproduction,leisuretimedecreasesGDP.Second,
leisuretimeincreasesoureconomicwelfare.Peopleenjoytheirleisuretimeandtherefore
havingmoreleisuretimeraisestheireconomicwelfare.
Topic: GDPandLeisureTime
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

45) Ifyoubuyanewwaterskisandothernewequipmentfor$2,500andtakeaweekoffofyour
job,whereyouearn$1,000aweek,togowaterskiing.Theequipmentyoupurchasedwasall
producedintheUnitedStates.Youthinkthattheweekwasworth$4,000.Asaresultofyour
vacation,GDPchangesbyhowmuch?
Answer: GDPchangesbyonlythe$2,500youspentonthewaterskisandotherequipment.
Topic: GDPandLeisureTime
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth585

6NumericandGraphingQuestions
1) Assumeasmallnationhasthefollowingstatistics:itsconsumptionexpenditureis$15million,
investmentis$2million,governmentpurchasesofgoodsandservicesis$1million,exportsof
goodsandservicestoforeignersis$1million,andimportsofgoodsandservicesfromforeigners
is$1.5million.CalculatethisnationsGDP.
Answer: ThenationsGDPequalsthesumofconsumptionexpenditure,investment,government
purchasesofgoodsandservices,andnetexportsofgoodsandservices,wherenet
exportsofgoodsandservicesequalsofgoodsandservicesexportsminusimportsof
goodsandservices.So,GDP=$15million+$2million+$1million+$1million-$1.5
million=$17.5million.
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Item
Consumptionexpenditure
Investment
Governmentexpenditureon
goodsandservices
Exportsofgoodsandservices
Importsofgoodsandservices

Billionsof
dollars
6,258
1,623
1,630
998
1,252

2) ThetableabovegivesthevaluesofdifferentexpendituresintheUnitedStatesduring1999.
AnswerthefollowingquestionsabouttheUnitedStates.
a) Whatwasthevalueofnetexportsofgoodsandservicesin1999?
b) Whatwas(nominal)GDPequaltoin1999?
c) Whatwasthe(nominal)valueoftotalproductionequaltoin1999?
Answer: a) Netexportsofgoodsandservicesequalsthevalueofexportsofgoodsandservices,
$998billion,minusthevalueofimportsofgoodsandservices,$1,252billion,or -$254
billion.
b) GDPequalsthesumofconsumptionexpenditure,$6,258,plusinvestment,$1,623,
plusgovernmentexpenditureongoodsandservices,$1,630,plusnetexports,-$254,or
$9,257billion.
c) ThevalueoftotalproductionequalsthevalueofGDP,sototalproductionwas$9,257
billionin1999.
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.

586ParkinMacroeconomics,TenthEdition

3) OnJanuary1,2010,UnitedDeliveryhadtrucksvaluedat$1.3million.During2010,United
Deliverypurchasednewtrucksvaluedat$500,000.IfthevalueofthetrucksonDecember31,
2010was$1.5million,whatistheamountofitsnetinvestmentanditsdepreciationduring
2010?
Answer: Netinvestmentisthechangeinthecapitalstockfromoneperiodtothenext.ForUnited
Delivery,netinvestmentequals$1.5million-$1.3million=$200,000.Netinvestment
alsoequalsgrossinvestmentminusdepreciation,sodepreciationequalsgrossinvestment
minusnetinvestment.Grossinvestment,thetotalamountspentonnewcapital
equipment,was$500,000.Netinvestmentwascalculatedtobe$200,000.Therefore
depreciationequals$500,000-$200,000=$300,000.
Topic: CapitalStockandInvestment
Skill: Analytical
Questionhistory: Modified10thedition
AACSB: AnalyticalSkills

4) Usingagraph,drawandlabelthephasesandturningpointsofthebusinesscycle.
Answer:

Thefigureshowsabusinesscycle.
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

7TrueorFalse
1) WhenIBM,anAmericanfirm,producescomputerchipsinanothercountry,thisproductionis
notincludedinU.S.GDPbecausetheproductiondidnottakeplaceintheUnitedStates.
Answer: TRUE
Topic: GrossDomesticProduct
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

Copyright2012PearsonEducation,Inc.

Chapter4MeasuringGDPandEconomicGrowth587

2) Thecircularflowdiagramshowsthattheflowofpaymentstothefactorsusedtoproducegoods
andservicesexceedstheflowofpaymentsforfinalgoodsandservices.
Answer: FALSE
Topic: CircularFlow
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

3) ThecircularflowdiagramshowsonlytheaggregateexpendituresmeasureofGDP.
Answer: FALSE
Topic: CircularFlow,AggregateExpenditures
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

4) Thecircularflowshowsthataggregatespendingislargerthanaggregateincomebecause
peoplesave.
Answer: FALSE
Topic: ExpenditureEqualsIncome
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: ReflectiveThinking

5) Whengrossinvestmentisgreaterthandepreciation,thenthenationscapitalstockincreased.
Answer: TRUE
Topic: CapitalandInvestment
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

6) Netinvestmentequalsgrossinvestmentminusdepreciation.
Answer: TRUE
Topic: NetInvestment
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

7) Ifdepreciationexceedsgrossinvestment,netinvestmentisnegative.
Answer: TRUE
Topic: NetInvestment
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

8) TheexpenditureapproachtomeasuringGDPincludesfirmsspendingonwages.
Answer: FALSE
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

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9) Intermediategoodsandservicesareoneofthelargestcomponentsoftheexpenditureapproach
tomeasuringGDP.
Answer: FALSE
Topic: ExpenditureApproach
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

10) TocalculateGDPusingtheexpenditureapproach,inpartitisnecessarytoaddexportsand
subtractimports.
Answer: TRUE
Topic: ExpenditureApproach,NetExports
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

11) TocalculateGDPwhenusingtheincomeapproach,youmustaddindirectbusinesstaxesand
depreciation.
Answer: TRUE
Topic: IncomeApproach
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

12) Thelargestcomponentofincomeisproprietorsincome.
Answer: FALSE
Topic: IncomeApproach,CompensationofEmployees
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

13) Aproductivitygrowthslowdowncanbeshownasyear-to-yearfluctuationsofrealGDP
aroundpotentialGDP.
Answer: FALSE
Topic: ProductivityGrowthSlowdown
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

14) RealGDPfluctuatesfromyeartoyearbutisalwaysbelowpotentialGDP.
Answer: FALSE
Topic: RealandPotentialGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

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Chapter4MeasuringGDPandEconomicGrowth589

15) Abusinesscycleisthepatternofshort-runupwardanddownwardmovementsinproduction
andjobs.
Answer: TRUE
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

16) Phasesandturningpointsofthebusinesscycleareexpansion,peak,recessionandtrough.
Answer: TRUE
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

17) Thebusinesscycleprogressesfromanexpansiontoapeaktoarecessionandthentoatrough.
Answer: TRUE
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

18) ArecessionoccurswhenrealGDPdecreasesforatleast6months.
Answer: TRUE
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

19) Anexpansionendswhentheeconomyhitsatroughandthenentersarecession.
Answer: FALSE
Topic: BusinessCycle
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

20) Tomeasureeconomicwelfare,oneneedsonlytomeasurerealGDP.
Answer: FALSE
Topic: EconomicWelfare
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

21) Theomissionofhouseholdproductioncausesactualeconomicproductiontobe
underestimated.
Answer: TRUE
Topic: GDPandHouseholdProduction
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

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22) HouseholdproductionisnotmeasuredintheGDP.
Answer: TRUE
Topic: HouseholdProduction
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

23) Alleconomicactivityintheundergroundeconomyrepresentstheproductionofillegalgoods
andservices.
Answer: FALSE
Topic: GDPandUndergroundEconomicActivity
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

24) TheundergroundeconomymeansthatGDPwilloverstatetheactuallevelofeconomicwelfare.
Answer: FALSE
Topic: GDPandUndergroundEconomicActivity
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

25) IfameasureofrealGDPcouldincludethevalueofleisuretime,measuredrealGDPwould
increase.
Answer: TRUE
Topic: GDPandLeisureTime
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

26) ThefactthatpricesforsimilargoodsdifferacrossnationscomplicatescomparisonsofrealGDP
acrosscountries.
Answer: TRUE
Topic: GDPandPurchasingPowerParityPrices
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

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Chapter4MeasuringGDPandEconomicGrowth591

8ExtendedProblems

Item
Wagespaid
Consumptionexpenditure
Taxes
Transferpayments
Profits
Investment
Governmentexpenditure
Exports
Imports

Amount
(millionsofdollars)
100
120
40
15
35
30
50
30
40

1) ThetableaboveshowsthetransactioninPinklandlastyear:
a) CalculatePinklandsGDP.
b) Whatapproachdidyouusetomakethiscalculation?
Answer: a) GDP=C+I + G + (X - M)= $120+ $30+ $50+ ($30- $40)=$190million.
b) Theexpenditureapproachisused,whichmeasuresGDPasC+I+G+(X-M).
Topic: ExpenditureApproach
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

Year
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001

RealGDP
(trillionsofyen)
478
483
484
489
499
516
525
519
520
534
536

2) ThetableaboveshowsJapansrealGDPbetween1991to2001.
a) DrawafigurewithJapansrealGDPfrom1991to2001.
b) Intheprevious30years,thegrowthrateofJapanspotentialGDPwas6percentayear.On
yourgraph,showthepaththatpotentialGDPwouldhavefollowedifitsGDPin1991wasequal
topotentialGDPandthegrowthrateofpotentialGDPhadbeenmaintainedin1991 -2001.
c) ShowtheLucaswedgeonyourfigure.

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592ParkinMacroeconomics,TenthEdition

Answer:

a) Seethefigureabove.
b) PotentialGDPisillustratedinthefigureabove.PotentialGDPin1991isassumedto
equalrealGDPin1991.Then,projectedGDPlevelsforsubsequentyearsarecalculated
bymultiplyingpotentialGDPinthepreviousyearby1.06.Forexample,in1992,
potentialGDPequals478trillionyen1.06=507trillionyen;potentialGDPin1993
equals507trillionyen1.06=537trillionyen;andsoon.
c) ThefigureaboveshowstheLucaswedgeasthedarkenedarea.TheLucaswedge
showsthatthelossofoutputaccumulatedinJapanin1991 -2001thatresultedfroma
slowdowninthegrowthrateofrealGDPwas1,575trillionyen.
Topic: LucasWedge
Skill: Analytical
Questionhistory: Previousedition,Chapter4
AACSB: AnalyticalSkills

9Appendix:GraphsinMacroeconomics
1) Toseehowvariablesevolveovertimeweuse
A) ascattergraph.
B) anevolutionplot.
C) across-sectionplot.
D) atime-seriesgraph.
Answer: D
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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Chapter4MeasuringGDPandEconomicGrowth593

2) Thefigureaboveshowsa
A) two-variabletime-seriesgraph.
B) time-seriesgraph.
C) scatterdiagram.
D) regression.
Answer: B
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

3) Onatime-seriesgraph,timeistypicallyshown
A) asanarea.
B) alongthex-axis.
C) alongthey-axis.
D) asanimplicitvariableheldconstant.
Answer: B
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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4) Thehorizontalaxisonatime-seriesgraph
A) measuresthevariablebeinggraphed.
B) measuresunitsoftimesuchasyears.
C) runsparalleltothey-axis.
D) measureshowthevariablebeinggraphedchanges.
Answer: B
Topic: Time-SeriesGraphs
Skill: Conceptual
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

5) Thefigureaboveshowsatime-seriesgraph.Thehorizontalaxismeasures________andthe
verticalaxismeasures________.
A) time;x-values
B) time;thevariableofinterest
C) thevariableofinterest;time
D) y-values;thevariableofinterest
Answer: B
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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Chapter4MeasuringGDPandEconomicGrowth595

6) Atrendis
A) ameasureofclosenessonascatterdiagram.
B) ageneraltendencyforavariabletoriseorfall.
C) themaximumvalueofavariable.
D) theminimumvalueofavariable.
Answer: B
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

7) Atrendshows
A) thedegreeofcorrelationbetweentwovariables.
B) thegeneraltendencyforavariabletoriseorfall.
C) thescaleusedtomeasuretovariables.
D) theincreasesinonevariable.
Answer: B
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

8) Trendrefersto
A) thescaleusedonthex- andy-coordinates.
B) increasesbutnotdecreasesofavariable.
C) decreasesbutnotincreasesofavariable.
D) ageneraltendencyforavariabletoriseorfall.
Answer: D
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

9) WhichofthefollowingisTRUEregardingatrend?
I. Acrosssectiongraphshowstrends.
II. Atime-seriesgraphshowstrends.
III. Ascatterplotshowstrendsovertime.
A) I
B) II
C) IandII
D) IIandIII
Answer: B
Topic: Time-SeriesGraphs
Skill: Conceptual
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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10) Whichtypeofgraphisusedtoidentifytrends?
A) time-series
B) scatterdiagram
C) cross-section
D) Noneoftheaboveanswersiscorrect.
Answer: A
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

11) Whichofthefollowingiscorrectaboutatime-seriesgraph?
I. Thex-axismeasurestime.
II. Atime-seriesgraphcanrevealifthereisatrendinthevariable.
A) onlyI
B) onlyII
C) bothIandII
D) neitherInorII
Answer: C
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

12) Atime-seriesgraphrevealswhetherthereisa________whichrepresents________.
A) trendinavariable;ageneraltendencyforthevariabletoriseorfall
B) relationshipbetweentwovariables;across-sectiongraph
C) trendinavariable;unrelatedvariables
D) relationshipbetweentwovariables;atrendinavariable
Answer: A
Topic: Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

13) Atime-seriesgraphshowingtotalproductioninJapanfrom1960to2010showsapositive
trend.Itisthecasethattotalproduction
A) felleveryyearbetween1960and2010.
B) roseeveryyearbetween1960and2010.
C) waslowerin2010thanin1960.
D) washigherin2010thanin1960.
Answer: D
Topic: Time-SeriesGraphs
Skill: Conceptual
Questionhistory: Modified10thedition
AACSB: AnalyticalSkills

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Chapter4MeasuringGDPandEconomicGrowth597

14) Usingtheabovefigure,duringwhichmonthwasthepriceforcrudeoilthehighest?
A) July
B) December
C) May
D) October
Answer: B
Topic: Time-SeriesGraphs
Skill: Analytical
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

15) Usingtheabovefigure,duringwhichofthefollowingperiodsdoesthepriceofcrudeoilhavea
downwardtrend?
A) MaytoJuly
B) MaytoNovember
C) JulytoOctober
D) OctobertoDecember
Answer: C
Topic: Time-SeriesGraphs
Skill: Analytical
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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16) Usingtheabovefigure,duringwhichofthefollowingperiodsdoesthepriceofcrudeoilshows
anupwardtrend?
A) MaytoNovember
B) MaytoJulyandOctobertoDecember
C) JulytoOctober
D) ApriltoNovember
Answer: B
Topic: Time-SeriesGraphs
Skill: Analytical
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

17) Accordingtothegraphinthefigureabove,whichyearexperiencedthemostrapidchangein
employment?
A) Year2
B) Year3
C) Year4
D) Year5
Answer: B
Topic: Time-SeriesGraphs
Skill: Analytical
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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Chapter4MeasuringGDPandEconomicGrowth599

18) Intheabovefigure,thediagramshows
A) adownwardtrendinx.
B) anupwardtrendinx.
C) ascatterdiagram.
D) atwo-variablescatterdiagram.
Answer: A
Topic: Time-SeriesGraphs
Skill: Conceptual
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

19) Inflationclimbedsteadilyfrom1952to1972.Atime-seriesgraphwithinflationonthevertical
axisandtime(inyears)onthehorizontalaxiswouldshow
A) therateofinflationasahorizontalline.
B) thatinflationwasfollowingadecreasingtrendline.
C) thatinflationhadapositivetrend.
D) thatinflationhadanegativetrend.
Answer: C
Topic: Time-SeriesGraphs
Skill: Analytical
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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600ParkinMacroeconomics,TenthEdition

20) Atime-seriesgraphdisplaysthepriceofcopper.Theslopeofthelineisnegativeforperiods
whenthe
A) priceofcopperisfalling.
B) priceofcopperisrising.
C) quantityofcopperisfalling.
D) priceofcopperislowandnotchanging.
Answer: A
Topic: Time-SeriesGraphs
Skill: Analytical
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

21) Agraphshowsthewagesoffactoryworkers.Theslopeofthelineispositiveforperiodswhen
thewagerateis
A) falling.
B) rising.
C) highbutnotrisinganyhigher.
D) low.
Answer: B
Topic: Time-SeriesGraphs
Skill: Analytical
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

22) Onatime-seriesgraphwitharatioscale,
A) theslopeofthelineisnegativewhenthelevelofthevariableisrising.
B) thesamedistancealongtheverticalaxismeasuresdifferentamountsofthevariable.
C) timeisplottedontheverticalaxisratherthanthehorizontalaxis.
D) itisimpossibletodetermineatrend.
Answer: B
Topic: RatioScale
Skill: Analytical
Questionhistory: New10thedition
AACSB: AnalyticalSkills

23) YoubelievethatthetotalamountofgoodsproducedintheUnitedStateshasgenerally
increasedovertheyears.Inatime-seriesgraphillustratingthetotalamountproduced,you
expecttofind
A) anupwardtrend.
B) norelationshipbetweentimeandtheamountofgoodsproduced.
C) aninverserelationshipbetweentimeandtheamountofgoodsproduced.
D) alinearrelationship.
Answer: A
Topic: StudyGuideQuestion,Time-SeriesGraphs
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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Chapter4MeasuringGDPandEconomicGrowth601

10Appendix:EssayQuestions
1) Whatkindofinformationisconveyedinatime-seriesgraph?
Answer: Atimeseriesgraphrevealsfourtypesofinformation.First,itshowstheactualvalueof
thevariable(s)ateachpointintime.Second,itshowswhetherthevariable(s)isrisingor
fallingastimepasses.Third,itshowsthespeedwithwhichthevariable(s)ischanging.
Finally,itshowsthepresenceorabsenceofatrend.
Topic: TimeSeries
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: Communication

11Appendix:NumericandGraphingQuestions

1) ThefigureaboveshowsthepriceofaDVDplayerfrom2003to2007.
a) Whattypeofgraphisillustratedabove?
b) WhatisthetrendinthepriceofaDVDplayer?
Answer: a) Thegraphisatime-seriesgraphbecauseitplotstimealongthehorizontalaxisand
thepriceofaDVDplayeralongtheverticalaxis.
b) ThetrendinthepriceofaDVDplayerisnegative,thatis,thepriceofaDVDplayer
hasgenerallydecreasedfromoneyeartothenext.
Topic: TimeSeries
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: AnalyticalSkills

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12Appendix:TrueorFalse
1) Atimeseriesgraphcanshowboththelevelofavariableandthespeedwithwhichthevariable
changesovertime.
Answer: TRUE
Topic: GraphingData
Skill: Conceptual
Questionhistory: Previousedition,Chapter1
AACSB: ReflectiveThinking

2) Atrendisageneraltendencyforavariabletoincreaseordecreaseovertime.
Answer: TRUE
Topic: GraphingData
Skill: Recognition
Questionhistory: Previousedition,Chapter1
AACSB: ReflectiveThinking

13MathematicalNote:Chained-DollarRealGDP
1) Valuingthequantitiesofgoodsproducedinconsecutiveyearsusingpricesinbothyearsand
thenaveragingthepercentagechangesinthevalueofoutputispartofthe________methodof
calculatingrealGDP.
A) base-year
B) moving-base-year
C) chain-weightedoutputindex
D) fixedquantities/variableprices
Answer: C
Topic: RealGDP
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

2) Thechain-weightedoutputindexmethod________.
A) isusedtocalculatethevalueofnominalGDP
B) valuesthequantitiesproducedinayearatthepricesofthebaseyear
C) showsthatrealGDPincreaseseveryyear
D) usesthepricesoftwoadjacentyearstocalculatetherealGDPgrowthrate
Answer: D
Topic: Chain-WeightedGrowthRate
Skill: Recognition
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

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Chapter4MeasuringGDPandEconomicGrowth603

3) WhichofthefollowingisTRUEregardingthechain -weightedoutputindexmethod?
I. ItisthemethodusedtomeasurethegrowthrateofnominalGDP.
II. Itusesdatafromthecurrentyearandfromthepreviousyear.
III. ItisamethodofmeasuringthegrowthrateofrealGDP.
A) IandII
B) IIandIII
C) IandIII
D) I,IIandIII
Answer: B
Topic: Chain-WeightedGrowthRate
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

4) Thechain-weightedoutputindex
A) usesonlythecurrentyearspricestocalculategrowthinrealGDP.
B) usespricesforthecurrentyearandthepreviousyeartocalculategrowthinrealGDP.
C) mustbecalculatedonlyeveryotheryear.
D) isaninaccuratewaytomeasuregrowthinrealGDPandsohasbeenreplacedbythe
nominal-to-realindex.
Answer: B
Topic: Chain-WeightedGrowthRate
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

5) Thechain-weightedoutputindexmethodofcalculatingrealGDPcompares
A) comparesthequantitiesofgoodsproducedinconsecutiveyearsusingpricesinbothyears
andaveragingthepercentagechangesinthevalueofoutput.
B) quantitiesproducedindifferentyearsusingpricesfromayearchosenasareference
period.
C) quantitiesproducedindifferentyearswiththepricesthatprevailedduringtheyearin
whichtheoutputwasproduced.
D) pricesatdifferentpointsintimeusingasampleofgoodsthatisrepresentativeofgoods
purchasedbyhouseholds.
Answer: A
Topic: Chain-WeightedGrowthRate
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

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6) Thechain-weightedoutputindexmethodofmeasuringrealGDPisbasedon
A) usingcurrentpricesratherthanbaseyearprices
B) averagingthemarketvalueoftheexpendituresoveratwoyearperiodandthen
comparingwithabaseperiod.
C) usingthepricesoftwoadjacentyearstocalculatethegrowthrateofrealGDP.
D) averagingthenominalandrealmeasuresofGDPtocomeupwithamoreaccuratefigure.
Answer: C
Topic: Chain-WeightedGrowthRate
Skill: Conceptual
Questionhistory: Previousedition,Chapter4
AACSB: ReflectiveThinking

7) At2010prices,thevalueofproductionin2011was6percentagepointshigherthanin2010.At
2011prices,thevalueofproductionin2011was4percentagepointshigherthanin2010.Using
thechain-weightedoutputindex,realGDPis________in2011thanin2010.
A) 10percentgreater
B) 5percentgreater
C) 7.5percentgreater
D) 4percentsmaller
Answer: B
Topic: Chain-WeightedGrowthRate
Skill: Analytical
Questionhistory: Modified10thedition
AACSB: AnalyticalSkills

8) RealGDPin2010is$10trillion.Between2010and2011,using2010prices,GDPgrew3percent
andusing2011pricesrealGDPgrew7percent.Usingthechain-weightedoutputindex
method,realGDPin2011is________trillion.
A) $10.5
B) $11
C) $10.1
D) $12.72
Answer: A
Topic: Chain-WeightedGrowthRate
Skill: Analytical
Questionhistory: Modified10thedition
AACSB: AnalyticalSkills

Copyright2012PearsonEducation,Inc.