Chapter 23

Chapter 23 Measuring a Nation's Income
TRUE/FALSE 1. In years of economic contraction, firms throughout the economy increase their production of goods and services, employment rises, and jobs are easy to find. ANS: F IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: "conomic e,pansion -S*: efinitional #. -acroeconomic statistics include . +, the inflation rate, the unemployment rate, retail sales, and the trade deficit. ANS: ' IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -acroeconomics -S*: efinitional $. -acroeconomic statistics tell us about a particular household, firm, or mar/et. ANS: F IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -acroeconomics -S*: efinitional 0. -acroeconomics is the study of the economy as a 1hole. ANS: ' IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -acroeconomics -S*: efinitional 2. 'he goal of macroeconomics is to e,plain the economic changes that affect many households, firms, and mar/ets simultaneously. ANS: ' IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -acroeconomics -S*: efinitional 3. -icroeconomics and macroeconomics are closely lin/ed. ANS: ' IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -icroeconomics 4 -acroeconomics -S*: efinitional 5. 'he basic tools of supply and demand are as central to macroeconomic analysis as they are to microeconomic analysis. ANS: ' IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: emand 4 Supply -S*: efinitional 6. . + is the most closely 1atched economic statistic because it is thought to be the best single measure of a society7s economic 1ell%being. ANS: ' IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: efinitional 8. . + can measure either the total income of everyone in the economy or the total e,penditure on the economy7s output of goods and services, but . + cannot measure both at the same time. ANS: F IF: # !"F: #$%1 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Interpretive
##
#$
*hapter #$ 9-easuring a Nation:s Income
1&. For an economy as a 1hole, income must e,ceed e,penditure. ANS: F IF: 1 !"F: #$%1 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Income 4 ",penditure -S*: efinitional 11. An economy7s income is the same as its e,penditure because every transaction has a buyer and a seller. ANS: ' IF: 1 !"F: #$%1 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Income 4 ",penditure -S*: efinitional 1#. . + is the mar/et value of all final goods and services produced by a country7s citi;ens in a given period of time. ANS: F IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: efinitional 1$. . + adds together many different /inds of products into a single measure of the value of economic activity by using mar/et prices. ANS: ' IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: efinitional 10. <.S. . + includes the mar/et value of rental housing, but not the mar/et value of o1ner%occupied housing. ANS: F IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Interpretive 12. <.S. . + e,cludes the production of most illegal goods. ANS: ' IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Interpretive 13. <.S. . + includes estimates of the value of items that are produced and consumed at home, such as house1or/ and car maintenance. ANS: F IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Applicative 15. . + includes only the value of final goods because the value of intermediate goods is already included in the prices of the final goods. ANS: ' IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: efinitional 16. Additions to inventory subtract from . +, and 1hen the goods in inventory are later used or sold, the reductions in inventory add to . +. ANS: F IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Inventory -S*: efinitional 18. =hile . + includes tangible goods such as boo/s and bug spray, it e,cludes intangible services such as the services provided by teachers and e,terminators. ANS: F IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Applicative #&. At a rummage sale, you buy t1o old boo/s and an old roc/ing chair> your spending on these items is not included in current . +. ANS: ' IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Applicative

#1. =hen an American doctor opens a practice in ?ermuda, his production there is part of <.S. . +. ANS: F IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Applicative ##.
#0
If the <.S. government reports that . + in the third @uarter 1as A1# trillion at an annual rate, then the amount of income and e,penditure during @uarter three 1as A$ trillion. ANS: ' IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Applicative #$. 'he government computes measures of income other than . + because these other measures usually tell different stories about overall economic conditions. ANS: F IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Income -S*: Interpretive #0. ",penditures by households on education are included in the consumption component of . +. ANS: ' IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption -S*: Interpretive #2. -ost goods 1hose purchases are included in the investment component of . + are used to produce other goods. ANS: ' IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Investment -S*: Interpretive #3. Ne1 home construction is included in the consumption component of . +. ANS: F IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Investment -S*: Interpretive #5. *hanges in inventory are included in the investment component of . +. ANS: ' IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Investment -S*: Interpretive #6. 'he investment component of . + refers to financial investment in stoc/s and bonds. ANS: F IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Investment -S*: Interpretive #8. 'he government purchases component of . + includes salaries paid to soldiers but not Social Security benefits paid to the elderly. ANS: ' IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Interpretive $&. If the value of an economy7s imports e,ceeds the value of that economy7s e,ports, then net e,ports is a negative number. ANS: ' IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Net e,ports -S*: Interpretive $1. If someone in the <nited States buys a surfboard produced in Australia, then that purchase is included in both the consumption component of <.S. . + and the net e,ports component of <.S. . +. ANS: ' IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption 4 Net e,ports -S*: Applicative
#2
$#.
If consumption is A0&&&, e,ports are A$&&, government purchases are A1&&&, imports are A0&&, and investment is A6&&, then . + is A25&&. ANS: ' IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Applicative $$. If e,ports are A2&&, . + is A6&&&, government purchases are A1#&&, imports are A5&&, and investment is A6&&, then consumption is A3#&&. ANS: ' IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption -S*: Applicative $0. If consumption is A16&&, . + is A0$&&, government purchases are A1&&&, imports are A5&&, and investment is A1#&&, then e,ports are A$&&. ANS: F IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: ",ports -S*: Applicative $2. <.S. . + 1as almost A10 billion in #&&5. ANS: F IF: 1 !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: efinitional $3. In #&&5, government purchases 1as the largest component of <.S. . +. ANS: F IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Interpretive $5. If total spending rises from one year to the ne,t, then the economy must be producing a larger output of goods and services. ANS: F IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Interpretive $6. An increase in nominal <.S. . + necessarily implies that the <nited States is producing a larger output of goods and services. ANS: F IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: Interpretive $8. Nominal . + uses constant base%year prices to place a value on the economy7s production of goods and services, 1hile real . + uses current prices to place a value on the economy7s production of goods and services. ANS: F IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + -S*: efinitional 0&. !eal . + evaluates current production using prices that are fi,ed at past levels and therefore sho1s ho1 the economy7s overall production of goods and services changes over time. ANS: ' IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + -S*: efinitional 01. 'he term real . + refers to a country7s actual . + as opposed to its estimated . +. ANS: F IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + -S*: Interpretive

0#. *hanges in real . + reflect only changes in the amounts being produced. ANS: ' IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + -S*: efinitional 0$. !eal . + is a better gauge of economic 1ell%being than is nominal . +. ANS: ' IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + -S*: efinitional 00. *hanges in the . + deflator reflect only changes in the prices of goods and services. ANS: ' IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + deflator -S*: Interpretive 02. If nominal . + is A1&,&&& and real . + is A6,&&&, then the . + deflator is 1#2. ANS: ' IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + deflator -S*: Applicative 03. If nominal . + is A1#,&&& and the . + deflator is 6&, then real . + is A12,&&&. ANS: ' IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + -S*: Applicative 05. "conomists use the term inflation to describe a situation in 1hich the economy7s overall production level is rising. ANS: F IF: 1 !"F: #$%0 NA': Analytic ()*: <nemployment and inflation ')+: Inflation -S*: efinitional 06.
#3
If the . + deflator in #&&3 1as 13& and the . + deflator in #&&5 1as 16&, then the inflation rate in #&&5 1as 1#.2B. ANS: ' IF: # !"F: #$%0 NA': Analytic ()*: <nemployment and inflation ')+: Inflation rate -S*: Applicative 08. If the . + deflator in #&&0 1as 12& and the . + deflator in #&&2 1as 1#&, then the inflation rate in #&&2 1as #2B. ANS: F IF: # !"F: #$%0 NA': Analytic ()*: <nemployment and inflation ')+: Inflation rate -S*: Applicative 2&. 'he . + deflator can be used to ta/e inflation out of nominal . +. ANS: ' IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + deflator -S*: efinitional 21. In #&&0, the level of <.S. real . + 1as close to four times its 1832 level. ANS: ' IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + -S*: efinitional 2#. 'he output of goods and services produced in the <nited States has gro1n on average $.# percent per year. ANS: ' IF: 1 !"F: #$%0 NA': Analytic ()*: +roductivity and gro1th')+: .ro1th -S*: efinitional
#5
2$. +eriods during 1hich real . + rises are called recessions. ANS: F IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !ecessions -S*: efinitional 20. !ecessions are associated 1ith lo1er incomes, rising unemployment, and falling profits. ANS: ' IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !ecessions -S*: efinitional 22. If real . + is higher in one country than in another, then 1e can be sure that the standard of living is higher in the country 1ith the higher real . +. ANS: F IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 Standard of living -S*: Interpretive 23. !eal . + per person tells us the income and e,penditure of the average person in the economy. ANS: ' IF: 1 !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + per person -S*: efinitional 25. . + does not directly measure those things that ma/e life 1orth1hile, but it does measure our ability to obtain many of the inputs into a 1orth1hile life. ANS: ' IF: 1 !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: efinitional 26. . + does not ma/e adjustments for leisure time, environmental @uality, or volunteer 1or/. ANS: ' IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Interpretive 28. )ther things e@ual, in countries 1ith higher levels of real . + per person, life e,pectancy and literacy rates are higher than in countries 1ith lo1er levels of real . + per person. ANS: ' IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + -S*: Interpretive S !RT ANS"ER 1. . + is defined as the mar/et value of all final goods and services produced 1ithin a country in a given period of time. In spite of this definition, some production is left out of . +. ",plain 1hy some final goods and services are not included.
ANS: . + e,cludes some products because they are so difficult to measure. 'hese products include services performed by individuals for themselves and their families, and most goods that are produced and consumed at home and, therefore, never enter the mar/etplace. In addition, illegal products are not included in . + even if they can be measured because, by society:s definition, they are bads, not goods. IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics -S*: Interpretive ')+: . +

#. ",plain 1hy it is the case that the value of intermediate goods produced and sold during the year is not included directly as part of . +, but the value of intermediate goods produced and not sold is included directly as part of . +.
#6
ANS: Intermediate goods produced and sold during the year are not included separately as part of . + because the value of those goods is included in the value of the final goods produced from them. If the intermediate good is produced but not sold during the year, its value is included as inventory investment for the year in 1hich it 1as produced. If inventory investment 1as not included as part of . +, true production 1ould be underestimated for the year the intermediate good 1ent into inventory, and overestimated for the year the intermediate good is used or sold. IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics -S*: Interpretive $. ')+: . + 4 Intermediate goods
Since it is counted as investment, 1hy doesn:t the purchase of earthmoving e@uipment from *hina by a <.S. corporation increase <.S. . +C
ANS: 'he purchase of foreign e@uipment is counted as investment, but . + measures only the value of production 1ithin the geographic borders of the <nited States. In order to avoid including the value of the imported e@uipment, imports are subtracted from . +. Dence, the value of the e@uipment in investment is canceled by subtracting its value as an import. IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics -S*: Applicative 0. ')+: . + 4 Investment 4 Imports
Identify the immediate effect of each of the follo1ing events on <.S. . + and its components. a. Eames receives a Social Security chec/. b. Eohn buys an Italian sports car. c. Denry buys domestically produced tools for his construction company. a. b. c. Since this is a transfer payment, there is no change to . + or to any of its components. *onsumption and imports 1ill rise and cancel each other out so that there is no change in <.S. . +. 'his increases the investment component of . + and so increases . +.
ANS:
IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 'ransfer payments 4 Net e,ports 4 Investment 2.
-S*: Applicative
?et1een 18#8 and 18$$, NN+ measured in current prices fell from A83 billion to A06 billion. )ver the same period, the relevant price inde, fell from 1&& to 52. a. =hat 1as the percentage decline in nominal NN+ from 18#8 to18$$C b. =hat 1as the percentage decline in real NN+ from 18#8 to 18$$C Sho1 your 1or/. a. b. NN+ measured in current prices is nominal NN+. Nominal NN+ fell from A83 billion to A06 billion, a decline of 2& percent. !eal NN+ is nominal NN+ divided by the price inde, and multiplied by 1&&. !eal NN+ in 18#8 1as FA83 b91&&G 1&& H A83 b. !eal NN+ in 18$$ 1as FA06 b952G 1&& H A30 b. !eal NN+ fell from A83 billion to A30 billion, a decline of $$ percent. ')+: Nominal NN+ 4 !eal NN+
ANS:
IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics -S*: Applicative
#8
3.

Iou find that your paychec/ for the year is higher this year than last. has increasedC ",plain carefully. oes that mean that your real income
ANS: !eal income is nominal income adjusted for general increase in prices. If my paychec/ is higher this year than last, my nominal income has increased. =hether my real income has increased or not depends on 1hat has happened since last year to the level of prices of things I buy 1ith my income. If the percentage increase in prices is less than the percentage increase in my nominal income, then my real income has increased. )ther1ise, my real income has not increased. IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal income 4 !eal income -S*: Interpretive 5. <.S. real . + is substantially higher today than it 1as 3& years ago. =hat does this tell us, and 1hat does it not tell us, about the 1ell%being of <.S. residentsC
ANS: Since this is in real terms, it tells us that the <.S. is able to ma/e a lot more stuff than in the past. Some of the increase in real . + is probably due to an increase in population, so 1e could say more if 1e /ne1 1hat had happened to real . + per person. Supposing that there 1as also an increase in real . + per person, 1e can say that the standard of living has risen. -aterial things are an important part of 1ell%being. Daving sufficient amounts of things such as food, shelter, and clothing are fundamental to 1ell%being. )ther things such as security, a safe environment, access to safe 1ater, access to medical care, justice, and freedom also matter. Do1ever, many of these things are more easily obtained by being able to produce more using fe1er resources. *ountries 1ith higher real . + per person tend to have longer life spans, less discrimination to1ards 1omen, less child labor, and a higher rate of literacy. IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 "conomic 1elfare -S*: Interpretive
Sec## $ Measuring a Nation's Income

MULTI%LE C !ICE 1. Statistics that are of particular interest to macroeconomists a. are largely ignored by the media. b. are 1idely reported by the media. c. include the e@uilibrium prices of individual goods and services. d. tell us about a particular household, firm, or mar/et.
ANS: ? IF: # !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -acroeconomics -S*: Interpretive #. -acroeconomists study a. the decisions of households and firms. b. the interaction bet1een households and firms. c. economy%1ide phenomena. d. regulations on firms and unions.
ANS: * IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -acroeconomics -S*: efinitional $. =hich of the follo1ing ne1spaper headlines is more closely related to 1hat microeconomists study than to 1hat macroeconomists studyC a. <nemployment rate rises from 2 percent to 2.2 percent. b. !eal . + gro1s by $.1 percent in the third @uarter. c. !etail sales at stores sho1 large gains. d. 'he price of oranges rises after an early frost.

ANS: IF: # !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -icroeconomics 4 -acroeconomics -S*: Interpretive 0. =hich of the follo1ing @uestions is more li/ely to be studied by a microeconomist than a macroeconomistC a. =hy do prices in general rise by more in some countries than in othersC b. =hy do 1ages differ across industriesC c. =hy do production and income increase in some periods and not in othersC d. Do1 rapidly is . + currently increasingC
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ANS: ? IF: # !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -icroeconomics 4 -acroeconomics -S*: Interpretive 2. =hich of the follo1ing topics are more li/ely to be studied by a macroeconomist than by a microeconomistC a. the effect of ta,es on the prices of airline tic/ets, the profitability of automobile%manufacturing firms, and employment trends in the food%service industry b. the price of beef, 1age differences bet1een genders, and antitrust la1s c. ho1 consumers ma,imi;e utility, and ho1 prices are established in mar/ets for agricultural products d. the percentage of the labor force that is out of 1or/, and differences in average income from country to country
ANS: IF: # !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -icroeconomics 4 -acroeconomics -S*: Interpretive 3. =e 1ould e,pect a macroeconomist, as opposed to a microeconomist, to be particularly interested in a. e,plaining ho1 economic changes affect prices of particular goods. b. devising policies to deal 1ith mar/et failures such as e,ternalities and mar/et po1er. c. devising policies to promote lo1 inflation. d. identifying those mar/ets that are competitive and those that are not competitive.
ANS: * IF: # !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -icroeconomics 4 -acroeconomics -S*: Interpretive 5. =hich of the follo1ing is not a @uestion that macroeconomists addressC a. =hy is average income high in some countries 1hile it is lo1 in othersC b. =hy does the price of oil rise 1hen 1ar erupts in the -iddle "astC c. =hy do production and employment e,pand in some years and contract in othersC d. =hy do prices rise rapidly in some periods of time 1hile they are more stable in other periodsC
ANS: ? IF: # !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: -acroeconomics -S*: Interpretive 6. 'he basic tools of supply and demand are a. useful only in the analysis of economic behavior in individual mar/ets. b. useful in analy;ing the overall economy, but not in analy;ing individual mar/ets. c. central to microeconomic analysis, but seldom used in macroeconomic analysis. d. central to macroeconomic analysis as 1ell as to microeconomic analysis.
ANS: IF: 1 !"F: #$%& NA': Analytic ()*: 'he study of economics and definitions of economics ')+: emand 4 Supply -S*: efinitional 8. =hich of the follo1ing statistic is usually regarded as the best single measure of a society7s economic 1ell% beingC a. the unemployment rate b. the inflation rate c. gross domestic product d. the trade deficit
$1

IF: 1 !"F: #$%& ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: * NA': Analytic ')+: . +
Sec#& $ Measuring a Nation's Income $ The Econom''s Income an( E)pen(iture

MULTI%LE C !ICE 1. =hich of the follo1ing statements about . + is correctC a. . + measures t1o things at once: the total income of everyone in the economy and the unemployment rate of the economy7s labor force. b. -oney continuously flo1s from households to government and then bac/ to households, and . + measures this flo1 of money. c. . + is to a nation7s economy as household income is to a household. d. All of the above are correct. IF: # !"F: #$%1 ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: . + #.
.ross domestic product measures t1o things at once: a. the total spending of everyone in the economy and the total saving of everyone in the economy. b. the total income of everyone in the economy and the total e,penditure on the economy:s output of goods and services. c. the value of the economy:s output of goods and services for domestic citi;ens and the value of the economy:s output of goods and services for the rest of the 1orld. d. the total income of households in the economy and the total profit of firms in the economy. IF: 1 !"F: #$%1 ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: ? NA': Analytic ')+: . + $.
For an economy as a 1hole, a. 1ages must e@ual profit. b. consumption must e@ual saving. c. income must e@ual e,penditure. d. the number of buyers must e@ual the number of sellers.
ANS: * IF: # !"F: #$%1 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Income 4 ",penditure -S*: Interpretive 0. For an economy as a 1hole, income must e@ual e,penditure because a. the number of firms is e@ual to the number of households in an economy. b. international la1 re@uires that income e@ual e,penditure. c. every dollar of spending by some buyer is a dollar of income for some seller. d. every dollar of saving by some consumer is a dollar of spending by some other consumer.
ANS: * IF: # !"F: #$%1 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Income 4 ",penditure -S*: Interpretive 2. If an economy7s . + rises, then it must be the case that the economy7s a. income rises and saving falls. b. income and saving both rise. c. income rises and e,penditure falls. d. income and e,penditure both rise.
ANS: IF: # !"F: #$%1 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Income 4 ",penditure -S*: Interpretive

3. If an economy7s . + falls, then it must be the case that the economy7s a. income falls and saving rises. b. income and saving both fall. c. income falls and e,penditure rises. d. income and e,penditure both fall.
$#
ANS: IF: # !"F: #$%1 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Income 4 ",penditure -S*: Interpretive 5. ?ecause every transaction has a buyer and a seller, a. . + is more closely associated 1ith an economy7s income than it is 1ith an economy7s e,penditure. b. every transaction contributes e@ually to an economy7s income and to its e,penditure. c. the number of firms must be e@ual to the number of households in a simple circular%flo1 diagram. d. firms7 profits are necessarily ;ero in a simple circular%flo1 diagram.
ANS: ? IF: # !"F: #$%1 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Income 4 ",penditure -S*: Interpretive 6. =hich of the follo1ing statements about . + is correctC a. . + measures t1o things at once: the total income of everyone in the economy and the total e,penditure on the economy7s output of goods and services. b. -oney continuously flo1s from households to firms and then bac/ to households, and . + measures this flo1 of money. c. . + is generally regarded as the best single measure of a society7s economic 1ell%being. d. All of the above are correct. IF: # !"F: #$%1 ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: NA': Analytic ')+: . + 8.
In a simple circular%flo1 diagram, total income and total e,penditure are a. never e@ual because total income al1ays e,ceeds total e,penditure. b. seldom e@ual because of the ongoing changes in an economy7s unemployment rate. c. e@ual only 1hen one dollar is spent on goods for every dollar that is spent on services. d. al1ays e@ual because every transaction has a buyer and a seller.
ANS: IF: # !"F: #$%1 NA': Analytic ()*: <nderstanding and applying economic models ')+: *ircular%flo1 diagram -S*: Interpretive 1&. In a simple circular%flo1 diagram, a. households spend all of their income. b. all goods and services are bought by households. c. e,penditures flo1 through the mar/ets for goods and services, 1hile income flo1s through the mar/ets for the factors of production. d. All of the above are correct.
ANS: IF: # !"F: #$%1 NA': Analytic ()*: <nderstanding and applying economic models ')+: *ircular%flo1 diagram -S*: Interpretive 11. In a simple circular%flo1 diagram, firms use the money they get from a sale to a. pay 1ages to 1or/ers. b. pay rent to landlords. c. pay profit to the firms7 o1ners. d. All of the above are correct.
ANS: IF: 1 !"F: #$%1 NA': Analytic ()*: <nderstanding and applying economic models ')+: *ircular%flo1 diagram -S*: efinitional
$$
1#.

In the actual economy, households a. spend all of their income. b. divide their income among spending, ta,es, and saving. c. buy all goods and services produced in the economy. d. ?oth FaG and FcG are correct.
ANS: ? IF: # !"F: #$%1 NA': Analytic ()*: <nderstanding and applying economic models ')+: *ircular%flo1 diagram -S*: Interpretive 1$. In the actual economy, goods and services are purchased by a. households, but not firms or the government. b. households and firms, but not the government. c. households and the government, but not firms. d. households, firms, and the government.
ANS: IF: # !"F: #$%1 NA': Analytic ()*: <nderstanding and applying economic models ')+: *ircular%flo1 diagram -S*: Interpretive
Sec#2 $ Measuring a Nation's Income $ The Measurement o* +ross ,omestic %ro(uct

MULTI%LE C !ICE 1. . + is defined as a. the mar/et value of all goods and services produced 1ithin a country in a given period of time. b. the mar/et value of all goods and services produced by the citi;ens of a country, regardless of 1here they are living, in a given period of time. c. the mar/et value of all final goods and services produced 1ithin a country in a given period of time. d. the mar/et value of all final goods and services produced by the citi;ens of a country, regardless of 1here they are living, in a given period of time. IF: 1 !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: * NA': Analytic ')+: . + #.
.ross domestic product is defined as a. the @uantity of all final goods and services demanded 1ithin a country in a given period of time. b. the @uantity of all final goods and services supplied 1ithin a country in a given period of time. c. the mar/et value of all final goods and services produced 1ithin a country in a given period of time. d. ?oth FaG and FbG are correct. IF: 1 !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: * NA': Analytic ')+: . + $.
'o compute . +, 1e a. add up the 1ages paid to all 1or/ers. b. add up the costs of producing all final goods and services. c. add up the mar/et values of all final goods and services. d. ta/e the difference bet1een the mar/et values of all final goods and services and the costs of producing those final goods and services. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: . + 0.
. + adds together many different /inds of products into a single measure of the value of economic activity by using prices determined by a. ban/s. b. economists. c. the government. d. mar/ets.

ANS: NA': Analytic ')+: . + 2. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
$0
In order to include many different goods and services in an aggregate measure, . + is computed using, primarily, a. values of goods and services based on surveys of consumers. b. mar/et prices. c. consumer and producer surpluses. d. costs of producing goods and services. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: ? NA': Analytic ')+: . + 3.
.ross domestic product adds together many different /inds of goods and services into a single measure of the value of economic activity. 'o do this, . + ma/es use of a. mar/et prices. b. prices that government economists believe reflect the true value of goods and services to society. c. the assumption that @uantities of goods and services produced are unchanged from year to year. d. the assumption that prices of goods and services are unchanged from year to year. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: A NA': Analytic ')+: . + 5.
In computing . +, mar/et prices are used to value final goods and services because a. mar/et prices do not change much over time, so it is easy to ma/e comparisons bet1een years. b. mar/et prices reflect the values of goods and services. c. if mar/et prices are out of line 1ith ho1 people value goods, the government sets price ceilings and price floors. d. None of the above is correct> mar/et prices are not used in computing . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: ? NA': Analytic ')+: . + 6.
If the price of a J player is three times the price of a * player, then a J player contributes a. more than three times as much to . + as does a * player. b. less than three times as much to . + as does a * player. c. e,actly three times as much to . + as does a * player. d. to . + but a * player does not contribute to . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
=hich of the follo1ing is correctC a. 'he mar/et value of rental housing services is included in . +, but the mar/et value of o1ner% occupied housing services is not. b. 'he mar/et value of o1ner%occupied housing services is included in . +, but the mar/et value of rental housing services is not. c. 'he mar/et values of both o1ner%occupied housing services and rental housing services are included in . +. d. Neither the mar/et value of o1ner%occupied housing services nor the mar/et value of rental housing services is included in . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
$2
1&.

'he value of the housing services provided by the economy:s o1ner%occupied houses is a. included in . +, and the estimated rental values of the houses are used to place a value on these housing services. b. included in . +, and the actual mortgage payments made on the houses are used to estimate the value of these rental services. c. e,cluded from . + since these services are not sold in any mar/et. d. e,cluded from . + since the value of these housing services cannot be estimated 1ith any degree of precision. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
Suppose an apartment comple, converts to a condominium, so that the former renters are no1 o1ners of their housing units. Suppose further that a current estimate of the value of the condominium o1ners: housing services is the same as the rent they previously paid. =hat happens to . + as a result of this conversionC a. . + necessarily increases. b. . + necessarily decreases. c. . + is unaffected because neither the rent nor the estimate of the value of housing services is included in . +. d. . + is unaffected because previously the rent payments 1ere included in . + and no1 the rent payments are replaced in . + by the estimate of the value of housing services. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: . + 1#.
Eames o1ns t1o houses. De rents one house to the Eohnson family for A1&,&&& per year. De lives in the other house. If he 1ere to rent the house in 1hich he lives, he could earn A1#,&&& per year in rent by doing so. Do1 much do the housing services provided by the t1o houses contribute to . +C a. A& b. A1&,&&& c. A1#,&&& d. A##,&&& IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: . + 1$.
. + e,cludes most items that are produced and sold illegally and most items that are produced and consumed at home because a. the @uality of these items is not high enough to contribute value to . +. b. measuring them is so difficult. c. the government 1ants to discourage the production and consumption of these items. d. these items are not reported on income ta, forms. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: ? NA': Analytic ')+: . + 10.
"stimates of the values of 1hich of the follo1ing non%mar/et goods or services are included in . +C a. the value of unpaid house1or/ b. the value of vegetables and other foods that people gro1 in their gardens c. the estimated rental value of o1ner%occupied homes d. All of the above are included in . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative

12. )ver the last fe1 decades, Americans have chosen to coo/ less at home and eat more at restaurants. 'his change in behavior, by itself, has a. reduced measured . +. b. not affected measured . +. c. increased measured . + only to the e,tent that the value of the restaurant meals e,ceeded the value of meals previously coo/ed at home. d. increased measured . + by the full value of the restaurant meals. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
$3
)ver time, people have come to rely more on mar/et%produced goods and less on goods that they produce for themselves. For e,ample, busy people 1ith high incomes, rather than cleaning their o1n houses, hire people to clean their houses. ?y itself, this change has a. caused measured . + to fall. b. not caused any change in measured . +. c. caused measured . + to rise. d. probably changed measured . +, but in an uncertain direction> the direction of the change depends on the difference in the @uality of the cleaning that has resulted. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: . + 15.
!alph pays someone to mo1 his la1n, 1hile -i/e mo1s his o1n la1n. !egarding these t1o practices, 1hich of the follo1ing statements is correctC a. )nly !alph7s payments are included in . +. b. !alph7s payments as 1ell as the estimated value of -i/e7s mo1ing services are included in . +. c. Neither !alph7s payments nor the estimated value of -i/e:s mo1ing services is included in . +. d. !alph7s payments are definitely included in . +, 1hile the estimated value of -i/e7s mo1ing services is included in . + only if -i/e voluntarily provides his estimate of that value to the government. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
If Susan s1itches from going to Speedy (ube for an oil change to changing the oil in her car herself, then . + a. necessarily rises. b. necessarily falls. c. 1ill be unaffected because the same service is produced in either case. d. 1ill be unaffected because car maintenance is not included in . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + 18.
=hich of the follo1ing is not included in . +C a. carrots gro1n in your garden and eaten by your family b. carrots purchased at a farmer7s mar/et and eaten by your family c. carrots purchased at a grocery store and eaten by your family d. -ore than one of the above is not included in . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: . +
$5
#&.

A professional gambler moves from a state 1here gambling is illegal to a state 1here gambling is legal. -ost of his income 1as, and continues to be, from gambling. Dis move a. necessarily raises . +. b. necessarily decreases . +. c. doesn:t change . + because gambling is never included in . +. d. doesn:t change . + because in either case his income is included. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: . + #1.
If a state made a previously%illegal activity, such as gambling or prostitution, legal, then, other things e@ual, . + a. necessarily decreases. b. necessarily increases. c. doesn:t change because both legal and illegal production are included in . +. d. doesn:t change because these activities are never included in . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + ##.
=hich of the follo1ing is included in . +C a. medical marijuana purchased from a government%run pharmacy by a glaucoma patient b. recreational marijuana purchased from a drug dealer by a college student c. recreational marijuana produced and consumed by a man in his attic d. All of the above are included in . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: . + #$.
-arijuana is an illegal good and broccoli is a legal good. =hich of the follo1ing statements is trueC a. arin gro1s and sells marijuana to (isa. =hen arin and (isa get married, . + falls. b. arin gro1s and sells marijuana to (isa. =hen arin and (isa get married, . + rises. c. arin gro1s and sells broccoli to (isa. =hen arin and (isa get married, . + falls. d. arin gro1s and sells broccoli to (isa. =hen arin and (isa get married, . + rises. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: . + #0.
Spots, Inc. produces in/ and sells it to =rite on 'arget, 1hich ma/es pens. 'he in/ produced by Spots, Inc. is called a. an inventory good. b. a transitory good. c. a preliminary good. d. an intermediate good.
ANS: IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Intermediate goods -S*: efinitional #2. =hich of the follo1ing statements is correctC a. 'he value of intermediate goods is al1ays included in . +. b. 'he value of intermediate goods is included in . + only if those goods 1ere produced in the previous year. c. 'he value of intermediate goods is included in . + only if those goods are added to firms7 inventories to be used or sold at a later date. d. 'he value of intermediate goods is never included in . +.
ANS: * IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: Interpretive

#3. .rapes are a. al1ays counted as an intermediate good. b. counted as an intermediate good only if they are used to produce another good, such as 1ine. c. counted as an intermediate good only if they are consumed. d. counted as an intermediate good, 1hether they are used to produce another good or consumed.
$6
ANS: ? IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Intermediate goods -S*: Applicative #5. .asoline is considered a final good if it is sold by a a. gasoline station to a bus company that operates a bus route bet1een San Francisco and (os Angeles. b. pipeline operator to a gasoline station in San Francisco. c. gasoline station to a motorist in (os Angeles. d. All of the above are correct.
ANS: * IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Intermediate goods -S*: Applicative #6. A steel company sells some steel to a bicycle company for A12&. 'he bicycle company uses the steel to produce a bicycle, 1hich it sells for A#2&. 'a/en together, these t1o transactions contribute a. A12& to . +. b. A#2& to . +. c. bet1een A#2& and A0&& to . +, depending on the profit earned by the bicycle company 1hen it sold the bicycle. d. A0&& to . +.
ANS: ? IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: Applicative #8. Al7s Aluminum *ompany sells A1 million 1orth of aluminum to Shiny Foil *ompany, 1hich uses the aluminum to ma/e aluminum foil. Shiny Foil *ompany sells A0 million 1orth of aluminum foil to households. 'he transactions just described contribute ho1 much to . +C a. A1 million b. A$ million c. A0 million d. A2 million
ANS: * IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: Applicative $&. )ne bag of flour is sold for A1.&& to a ba/ery, 1hich uses the flour to ba/e bread that is sold for A$.&& to consumers. A second bag of flour is sold to a consumer in a grocery store for A#.&&. 'a/ing these three transactions into account, 1hat is the effect on . +C a. . + increases by A#.&&. b. . + increases by A$.&&. c. . + increases by A2.&&. d. . + increases by A3.&&.
ANS: * IF: $ !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: Analytical
$8
$1.

Suppose there are only t1o firms in an economy: *o1hide, Inc. produces leather and sells it to *ouches, Inc., 1hich produces and sells leather furniture. =ith each A1,&&& of leather that it buys from *o1hide, Inc., *ouches, Inc. produces a couch and sells it for A$,&&&. Neither firm had any inventory at the beginning of #&&3. uring that year, *o1hide produced enough leather for #& couches. *ouches, Inc. bought 6&B of that leather for A13,&&& and promised to buy the remaining #&B for A0,&&& in #&&5. *ouches, Inc. produced 13 couches during #&&3 and sold each one during that year for A$,&&&. =hat 1as the economy:s . + for the #&&3C a. A06,&&& b. A2#,&&& c. A30,&&& d. A36,&&&
ANS: ? IF: $ !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: Analytical $#. Suppose there are only t1o firms in an economy: !olling !a1hide produces ra1hide and sells it to *he1y *homp, Inc., 1hich uses the ra1hide to produce and sell dog che1s. =ith each A# of ra1hide that it buys from !olling !a1hide, *he1y *homp, Inc. produces a dog che1 and sells it for A2. Neither firm had any inventory at the beginning of #&&5. uring that year, !olling !a1hide produced enough ra1hide for 1&&& dog che1s. *he1y *homp, Inc. bought 52B of that ra1hide for A12&& and promised to buy the remaining #2B for A2&& in #&&6. *he1y *homp, Inc. produced 52& dog che1s during #&&5 and sold each one during that year for A2. =hat 1as the economy:s . + for #&&5C a. A$52& b. A0#2& c. A2#2& d. A252&
ANS: ? IF: $ !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: Analytical $$. In #&&5, *orny *ompany gro1s and sells A# million 1orth of corn to 'asty *ereal *ompany, 1hich ma/es corn fla/es. 'asty *ereal *ompany produces A3 million 1orth of corn fla/es in #&&5, 1ith sales to households during the year of A0.2 million. 'he unsold A1.2 million 1orth of corn fla/es remains in 'asty *ereal *ompany7s inventory at the end of #&&5. 'he transactions just described contribute ho1 much to . + for #&&5C a. A0.2 million b. A3 million c. A3.2 million d. A6 million
ANS: ? IF: $ !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: Analytical $0. 'he total sales of all firms in the economy for a year a. e@uals . + for the year. b. is larger than . + for the year. c. is smaller than . + for the year. d. Any of the above is possible.
ANS: ? IF: $ !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + 4 Intermediate goods -S*: Analytical $2. =hich of the follo1ing domestically produced items is not included in . +C a. a bottle of shampoo b. a hairdryer c. a haircut d. All of the above are included in . +.

ANS: NA': Analytic ')+: . + $3. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
0&
=hich of the follo1ing is not included in . +C a. a can of bug spray b. the services of an e,terminator c. the honey produced and sold by a bee/eeper d. All of the above are included in . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: . + $5.
.ross domestic product includes all a. legal and illegal goods, but it e,cludes all legal and illegal services. b. legal and illegal goods and all legal and illegal services. c. legal goods and services, but it e,cludes illegal goods and services. d. legal and illegal goods and legal services, but it e,cludes illegal services. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: . + $6.
'ransactions involving items produced in the past, such as the sale of a 2%year%old automobile by a used car dealership or the purchase of an anti@ue roc/ing chair by a person at a yard sale, are a. included in current . + because . + measures the value of all goods and services sold in the current year. b. included in current . + but valued at their original prices. c. not included in current . + because . + only measures the value of goods and services produced in the current year. d. not included in current . + because these items have no current value. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: . + $8.
=hich of the follo1ing events 1ould cause . + for #&&5 to increaseC a. In February #&&5, Amanda sells a 1883 Donda Accord to Isabella. b. In February #&&5, Amanda buys a tic/et to visit a ;oo in Florida. She visits the ;oo in April #&&5. c. In ecember #&&5, Isabella eats onions that she harvested from her bac/yard garden in )ctober #&&5. d. All of the above are correct. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + 0&.
<ntil recently, .eorge lived in a home that 1as ne1ly constructed in #&&2. In #&&2, he paid A#&&,&&& for the brand ne1 house. De sold the house in #&&3 for A##2,&&&. =hich of the follo1ing statements is correct regarding the sale of the houseC a. 'he #&&3 sale increased #&&3 . + by A##2,&&& and had no effect on #&&2 . +. b. 'he #&&3 sale increased #&&3 . + by A#2,&&& and had no effect on #&&2 . +. c. 'he #&&3 sale increased #&&3 . + by A##2,&&&> furthermore, the #&&3 sale caused #&&2 . + to be revised up1ard by A#2,&&&. d. 'he #&&3 sale affected neither #&&2 . + nor #&&3 . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: . +
01
01.

'yler and *amille both live in )/lahoma. A ne1%car dealer in )/lahoma bought a ne1 car from the manufacturer for A16,&&& and sold it to 'yler for A##,&&&. (ater that year, 'yler sold the car to *amille for A15,&&&. ?y ho1 much did these transactions contribute to <.S. . + for the yearC a. A16,&&& b. A##,&&& c. A$8,&&& d. A25,&&& IF: $ !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: ? NA': Analytic ')+: . + 0#.
*onsider t1o cars manufactured by *hevrolet in #&&5. uring #&&5, *hevrolet sells one of the t1o cars to Sean for A#0,&&&. (ater in the same year, Sean sells the car to Kati for A18,&&&. 'he second automobile, 1ith a mar/et value of A$&,&&&, is unsold at the end of #&&5 and it remains in *hevrolet7s inventory. 'he transactions just described contribute ho1 much to . + for #&&5C a. A#0,&&& b. A0$,&&& c. A20,&&& d. A5$,&&& IF: $ !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: * NA': Analytic ')+: . + 0$.
=hich of the follo1ing is included in <.S. . +C a. the value of production by an American 1or/ing in -orocco b. the value of production by a -oroccan 1or/ing in the <.S. c. ?oth FaG and FbG are correct. d. Neither FaG nor FbG is correct. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + 00.
Anna, a <.S. citi;en, 1or/s only in .ermany. 'he value she adds to production in .ermany is included a. in both .erman . + and <.S. . +. b. in .erman . +, but it is not included in <.S. . +. c. in <.S. . +, but it is not included in .erman . +. d. in neither .erman . + nor <.S. . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + 02.
An American company operates a fast food restaurant in !omania. =hich of the follo1ing statements is accurateC a. 'he value of the goods and services produced by the restaurant is included in both !omanian . + and <.S. . +. b. )ne%half of the value of the goods and services produced by the restaurant is included in !omanian . +, and the other one%half of the value is included in <.S. . +. c. 'he value of the goods and services produced by the restaurant is included in !omanian . +, but not in <.S. . +. d. 'he value of the goods and services produced by the restaurant is included in <.S. . +, but not in !omanian . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative

03.
0#
Luality -otors is a Eapanese%o1ned company that produces automobiles> all of its automobiles are produced in American plants. In #&&5, Luality -otors produced A#& million 1orth of automobiles, 1ith A1# million in sales to Americans, A3 million in sales to *anadians, and A# million 1orth of automobiles added to Luality -otors7 inventory. 'he transactions just described contribute ho1 much to <.S. . + for #&&5C a. A1# million b. A10 million c. A#& million d. A$0 million IF: $ !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: * NA': Analytic ')+: . + 05.
=hich of the follo1ing items is included in <.S. . +C a. goods produced by foreign citi;ens 1or/ing in the <nited States b. the difference in the price of the sale of an e,isting home and its original purchase price c. /no1n illegal activities d. None of the above is included in <.S. . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
=hich of the follo1ing items is included in <.S. . +C a. final goods and services that are purchased by the <.S. federal government b. intermediate goods that are produced in the <.S. but that are unsold at the end of the . + accounting period c. goods and services produced by foreign citi;ens 1or/ing in the <.S. d. All of the above are included in <.S. . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
=hich of the follo1ing items is included in <.S. . +C a. the estimated value of production accomplished at home, such as bac/yard production of fruits and vegetables b. the value of illegally%produced goods and services c. the value of cars and truc/s produced in foreign countries and sold in the <.S. d. None of the above is included in <.S. . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: . + 2&.
=hich of the follo1ing is not included in <.S. . +C a. unpaid cleaning and maintenance of houses b. services such as those provided by la1yers and hair stylists c. the estimated rental value of o1ner%occupied housing d. production of foreign citi;ens living in the <nited States IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
=hich of the follo1ing values 1ould be included in <.S. . + for #&&3C a. the rent that Eohn, an American citi;en, 1ould have paid on his home in Ne1 Ior/ in #&&3 had he not o1ned that home b. the rent that Sarah, an American citi;en, paid on her apartment in San Francisco in #&&3 c. the value of the legal services provided by *arlos, an attorney and a -e,ican citi;en, 1ho lived in Douston and practiced la1 there in #&&3 d. All of the above 1ould be included in <.S. . + for #&&3.
0$

IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: . + 2#.
=hich of the follo1ing e,amples of production of goods and services 1ould be included in <.S. . +C a. Samantha, a *anadian citi;en, gro1s s1eet corn in -innesota and sells it to a grocery store in *anada. b. Ian, an American citi;en, gro1s peaches for his family in the bac/ yard of their Atlanta home. c. (eo, an American citi;en, gro1s marijuana in his Seattle home and sells it to his friends and neighbors. d. None of the above e,amples of production 1ould be included in <.S. . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: . + 2$.
=hich of the follo1ing transactions adds to <.S. . + for #&&3C a. In #&&3, Ashley sells a car that she bought in #&&# to =illiam for A2,&&&. b. An American management consultant 1or/s in -e,ico during the summer of #&&3 and earns the e@uivalent of A$&,&&& during that time. c. =hen Eohn and Eennifer 1ere both single, they lived in separate apartments and each paid A52& in rent. Eohn and Eennifer got married in #&&3 and they bought a house that, according to reliable estimates, could be rented for A1,3&& per month. d. None of the above transactions adds to <.S. . + for #&&3. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: . + 20.
=hich of the follo1ing transactions adds to <.S. . + for #&&3C a. In #&&3, -arvin =indo1s manufactures #& 1indo1s that 1ill eventually be installed in an office building in -inneapolis. 'he 1indo1s remain in -arvin7s inventory at the end of #&&3. b. An Irish mar/eting consultant 1or/s in ?oston during the summer of #&&3 and earns A$&,&&& during that time. c. =hen 'im and 'ina 1ere both single, they lived in separate apartments and each paid A52& in rent. 'im and 'ina got married in #&&3 and they bought a house that, according to reliable estimates, could be rented for A1,22& per month. d. All of the above transactions add to <.S. . + for #&&3. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
'he government of =re,ington, a country 1hich has adopted American . + accounting conventions, reported that . + in @uarter $ 1as A1# billion at an annual rate. 'his means that the mar/et value of all final goods and services produced 1ithin =re,ington in @uarter $ 1as a. A$ billion. b. A0 billion. c. A1# billion. d. A06 billion. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
'he government of =re,ington, a country 1hich has adopted American . + accounting conventions, has calculated that the seasonally%adjusted mar/et value of all final goods and services produced 1ithin =re,ington in @uarter 1 1as A2 billion. 'he government 1ill report that . + in @uarter 1 1as a. A1.#2 billion at an annual rate. b. A0 billion at an annual rate. c. A2 billion at an annual rate. d. A#& billion at an annual rate.

ANS: NA': Analytic ')+: . + 25. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
00
In a certain small country, the unit of currency is the huc/. 'hat country7s government recently announced that M. + amounted to 0&& million huc/s in the @uarter that just ended.M Assuming this country has adopted American . + accounting conventions, this statement means that . +, a. 1ithout seasonal adjustment, amounted to 1&& million huc/s in the @uarter that just ended. b. 1ith seasonal adjustment, amounted to 1&& million huc/s in the @uarter that just ended. c. 1ithout seasonal adjustment, amounted to 0&& million huc/s in the @uarter that just ended. d. 1ith seasonal adjustment, amounted to 0&& million huc/s in the @uarter that just ended. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + 26.
In a certain small country, the unit of currency is the huc/. 'hat country7s government recently announced that M. + amounted to 0&& million huc/s in the @uarter that just ended.M Assuming this country has adopted American . + accounting conventions, this statement means that . +, after seasonal adjustment, actually amounted to a. 1&& million huc/s in the @uarter that just ended. b. 1&& million huc/s over the last four @uarters, including the one that just ended. c. 0&& million huc/s in the @uarter that just ended. d. 0&& million huc/s over the last four @uarters, including the one that just ended. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
Suppose the government reports that <.S. . + 1as about A1$ trillion dollars in the most recent @uarter. =hat is the correct interpretation of this numberC a. 'his number reflects the actual value of final goods and services produced in that @uarter. b. 'his number 1as obtained by ta/ing the actual value of final goods and services produced in that @uarter, then seasonally adjusting that value. c. 'his number 1as obtained by ta/ing the actual value of final goods and services produced in that @uarter, then multiplying that value by 0. d. 'his number 1as obtained by ta/ing the actual value of final goods and services produced in that @uarter, then seasonally adjusting that value and multiplying it by 0. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: . + 3&.
In the nation of +aolaland, @uarterly . + is al1ays higher in the second @uarter than in other @uarters. In order to account systematically for this predictable second%@uarter jump in . +, +aolaland:s government statisticians 1ill a. employ a statistical procedure called seasonal adjustment. b. report a four%@uarter moving average of . + rather than the one%@uarter figure. c. report .N+ rather than . +. d. report personal income rather than . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
'he statistical discrepancy that regularly arises in national income accounting refers to the slight difference bet1een a. personal income and personal disposable income. b. estimates of . + and actual . +. c. the income and e,penditure approaches to the calculation of . +. d. the @uarterly and annual approaches to the calculation of . +.
02

IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: . + 3#.
=hich government entity computes <.S. . + every three monthsC a. the *ouncil of "conomic Advisers b. the epartment of *ommerce c. the epartment of 'reasury d. the Federal !eserve
ANS: ? IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: <.S. epartment of *ommerce -S*: efinitional 3$. =hich of the follo1ing correctly orders <.S. income measures from largest to smallestC a. disposable personal income, gross national product, national income, net national product, personal income b. personal income, net national product, national income, gross national product, disposable personal income c. gross national product, net national product, national income, personal income, disposable personal income d. disposable personal income, personal income, national income, net national product, gross national product IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: Income 30.
<.S. . + and <.S. .N+ are related as follo1s: a. .N+ H . + N Jalue of e,ported goods % Jalue of imported goods. b. .N+ H . + % Jalue of e,ported goods N Jalue of imported goods. c. .N+ H . + N Income earned by foreigners in the <.S. % Income earned by <.S. citi;ens abroad. d. .N+ H . + % Income earned by foreigners in the <.S. N Income earned by <.S. citi;ens abroad. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: NA': Analytic ')+: . + 4 .N+ 32.
Do1 does <.S. gross domestic product F. +G differ from <.S. gross national product F.N+GC a. .N+ H . + % losses from depreciation b. .N+ H . + N income earned by <.S. citi;ens abroad % income that foreign citi;ens earned in the <.S. c. .N+ H . + N income earned by corporations d. .N+ H . + % depreciation % retained earnings IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: ? NA': Analytic ')+: . + 4 .N+ 33.
arla, a *anadian citi;en, 1or/s only in the <nited States. 'he value of the output she produces is a. included in both <.S. . + and <.S. .N+. b. included in <.S. . +, but it is not included in <.S. .N+. c. included in <.S. .N+, but it is not included in <.S. . +. d. included in neither <.S. . + nor <.S. .N+. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + 4 .N+ 35.
.reg, a <.S. citi;en, 1or/s only in *anada. 'he value of the output he produces is a. included in both <.S. . + and <.S. .N+. b. included in <.S. . +, but it is not included in <.S. .N+. c. included in <.S. .N+, but it is not included in <.S. . +. d. included in neither <.S. . + nor <.S. .N+.

ANS: * NA': Analytic ')+: . + 4 .N+ 36. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
03
An Italian company operates a pasta restaurant in the <.S. 'he value of the output produced by this pasta restaurant is included in a. <.S. .N+ and Italian .N+. b. <.S. .N+ and Italian . +. c. <.S. . + and Italian .N+. d. <.S. . + and Italian . +. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: . + 4 .N+ 38.
.ina, a <.S. citi;en, 1or/s only in .ermany. 'he value of .ina7s production is included in a. <.S. . + and .erman . +. b. <.S. . + and .erman .N+. c. <.S. .N+ and .erman . +. d. <.S. .N+ and .erman .N+. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: . + 4 .N+ 5&.
=hich of the follo1ing is not correctC a. .N+ e@uals net national product plus losses from depreciation. b. For most countries, including the <nited States, . + and .N+ are nearly the same. c. . + and .N+ typically move in opposite directions. d. +ersonal income e@uals disposable personal income plus personal ta,es plus certain nonta, payments. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: Income 51.
Do1 is net national product FNN+G calculatedC a. Saving is subtracted from the total income of a nation7s citi;ens. b. Saving is subtracted from the total income of a nation7s permanent residents. c. epreciation losses are subtracted from the total income of a nation7s citi;ens. d. epreciation losses are subtracted from the total income of a nation7s permanent residents. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: NA': Analytic ')+: NN+ 5#.
In the national income accounts, depreciation is called a. Mconsumption of fi,ed capital.M b. Mnegative investment.M c. Mcapital ta,ation.M d. Mloss due to 1ear.M IF: 1 !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: A NA': Analytic ')+: epreciation 5$.
=hich of the follo1ing is an e,ample of depreciationC a. falling stoc/ prices b. the retirement of several employees c. computers becoming obsolete d. All of the above are e,amples of depreciation. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: epreciation
05
50.

National income is defined as a. the total income of a nation7s permanent residents minus losses from depreciation. b. the income that households and noncorporate businesses receive. c. the total income earned by a nation7s permanent residents in the production of goods and services. d. the income that households and noncorporate businesses have left after satisfying all their obligations to the government.
ANS: * IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: National income -S*: efinitional 52. National income differs from net national product in that it includes business subsidies and e,cludes a. profits of corporations. b. indirect business ta,es. c. retained earnings of corporations. d. depreciation.
ANS: ? IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: National income 4 NN+ -S*: Interpretive 53. 'he income that households and noncorporate businesses receive is called a. personal income. b. net national product. c. disposable personal income. d. national income.
ANS: A IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: +ersonal income -S*: efinitional 55. <nli/e national income, personal income a. includes retained earnings, corporate income ta,es and social insurance contributions, and e,cludes interest and transfer payments received by households from government. b. e,cludes retained earnings, corporate income ta,es, social insurance contributions, and interest and transfer payments received by households from government. c. e,cludes retained earnings, corporate income ta,es and social insurance contributions, and includes interest and transfer payments received by households from government. d. includes retained earnings, corporate income ta,es, social insurance contributions, and interest and transfer payments received by households from government.
ANS: * IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: +ersonal income -S*: Interpretive 56. !etained earnings is income that a. households retain after paying ta,es. b. businesses retain after paying ta,es. c. corporations have earned but have not used to invest in plant, e@uipment, and inventories. d. corporations have earned but have not paid out to their o1ners.
ANS: IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !etained earnings -S*: efinitional 58. isposable personal income is the income that a. households have left after paying ta,es and non%ta, payments to the government. b. businesses have left after paying ta,es and non%ta, payments to the government. c. households and noncorporate businesses have left after paying ta,es and non%ta, payments to the government. d. households and businesses have left after paying ta,es and non%ta, payments to the government.
ANS: * IF: 1 !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: isposable personal income -S*: efinitional

Table 23-1 'he table belo1 contains data for the country of =re,ington for the year #&&3. . + Income earned by citi;ens abroad Income foreigners earn here (osses from depreciation Indirect business ta,es ?usiness subsidies Statistical discrepancy !etained earnings *orporate income ta,es Social insurance contributions Interest paid to households by government 'ransfer payments to households from government +ersonal ta,es Nonta, payments to government 6&. A11& A2 A12 A0 A3 A# A& A2 A3 A1& A2 A12 A$& A2
06
Re*er to Ta-.e 23$&. 'he mar/et value of all final goods and services produced 1ithin =re,ington in #&&3 is a. A1&&. b. A11&. c. A112. d. A1$&. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + 61.
Re*er to Ta-.e 23$&. .ross national product for =re,ington in #&&3 is a. A1&&. b. A11&. c. A112. d. A1$&. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: .N+ 6#.
Re*er to Ta-.e 23$&. Net national product for =re,ington in #&&3 is a. A83. b. A1&0. c. A1&3. d. A110. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: NN+ 6$.
Re*er to Ta-.e 23$&. National income for =re,ington in #&&3 is a. A66. b. A8#. c. A1&&. d. A1&0.
ANS: ? IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: National income -S*: Applicative
08
60.

Re*er to Ta-.e 23$&. +ersonal income for =re,ington in #&&3 is a. A21. b. A81. c. A8$. d. A1$$.
ANS: ? IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: +ersonal income -S*: Applicative 62. Re*er to Ta-.e 23$&. a. A23. b. A33. c. A113. d. A1#3. isposable personal income for =re,ington in #&&3 is
ANS: A IF: # !"F: #$%# NA': Analytic ()*: 'he study of economics and definitions of economics ')+: isposable personal income -S*: Applicative 63. For monitoring fluctuations in the national economy, 1hich measure of income is bestC a. . + b. .N+ c. NN+ d. It does not matter very much 1hich measure 1e use. IF: # !"F: #$%# ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: NA': Analytic ')+: Income
Sec#3 $ Measuring a Nation's Income $ The Components o* +,%

MULTI%LE C !ICE 1. In the e@uation Y H C N I N G N NX, a. Y represents the economy7s total e,penditure. b. C represents household e,penditures on services and durable goods. c. all of the variables are al1ays positive numbers. d. All of the above are correct. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: A NA': Analytic ')+: . + #.
. + is e@ual to a. the mar/et value of all final goods and services produced 1ithin a country in a given period of time. b. Y. c. C N I N G N NX. d. All of the above are correct. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: NA': Analytic ')+: . + $.
An identity is an e@uation that a. describes an e@uilibrium. b. pertains to macroeconomics, not to microeconomics. c. must be true because of ho1 the variables in the e@uation are defined. d. involves final goods, not intermediate goods. IF: 1 !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: * NA': Analytic ')+: Identity

0. 'he consumption component of . + includes spending on a. durable goods and nondurable goods, but not spending on services. b. durable goods and services, but not spending on nondurable goods. c. nondurable goods and services, but not spending on durable goods. d. durable goods, nondurable goods, and services. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
2&
ANS: NA': Analytic ')+: *onsumption 2.
*onsumption consists of spending by households on goods and services, 1ith the e,ception of a. purchase of intangible services. b. purchases of durable goods. c. purchases of ne1 houses. d. spending on education. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: *onsumption 3.
=hich of the follo1ing is not an e,ample of a durable goodC a. a refrigerator b. an automobile c. a business suit d. a furnace
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: urable goods -S*: Applicative 5. =hich of the follo1ing is not an e,ample of a nondurable goodC a. a loaf of bread b. a pair of jeans c. a micro1ave d. a pound of bacon
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nondurable goods -S*: Applicative 6. =hen economists refer to intangible items, they are referring to such things as a. illegal goods, and the value of such items is included in . +. b. illegal goods, and the value of such items is e,cluded from . +. c. consulting services and dental care, and the value of such items is included in . +. d. consulting services and dental care, and the value of such items is e,cluded from . +. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: Services 8.
Dousehold spending on education is included in a. consumption, although it might be argued that it 1ould fit better in investment. b. investment, although it might be argued that it 1ould fit better in consumption. c. government spending, based on the fact that most higher%education students attend publicly% supported colleges and universities. d. None of the above is correct> in general, household spending on services is not included in any component of . +. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: A NA': Analytic ')+: *onsumption
21
1&.

Dousehold spending on education is counted in 1hich component or subcomponent of . +C a. consumption of durable goods b. consumption of nondurable goods c. consumption of services d. investment IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
=hich of the follo1ing is included in the consumption component of <.S. . +C a. purchases of staplers, paper clips, and pens by <.S. business firms b. purchases of natural gas by <.S. households c. purchases of ne1ly constructed homes by <.S. households d. All of the above are correct. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: *onsumption 1#.
If you buy a burger and fries at your favorite fast food restaurant, a. then neither . + nor consumption 1ill be affected because you 1ould have eaten at home had you not bought the meal at the restaurant. b. then . + 1ill be higher, but consumption spending 1ill be unchanged. c. then . + 1ill be unchanged, but consumption spending 1ill be higher. d. then both . + and consumption spending 1ill be higher.
ANS: IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption 4 . + -S*: Applicative 1$. For the purpose of calculating . +, investment is spending on a. stoc/s, bonds, and other financial assets. b. real estate and financial assets such as stoc/s and bonds. c. capital e@uipment, inventories, and structures, including household purchases of ne1 housing. d. capital e@uipment, inventories, and structures, e,cluding household purchases of ne1 housing. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: Investment 10.
=hat 1ord do economists use to refer to the purchase of goods that 1ill be used in the future to produce more goods and servicesC a. capital b. consumption c. investment d. costs IF: 1 !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: efinitional
=hich of the follo1ing is included in the investment component of . +C a. households7 purchases of ne1ly constructed homes b. net additions to firms7 inventories c. firms7 purchases of capital e@uipment d. All of the above are correct. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: NA': Analytic ')+: Investment

13. =hich of the follo1ing e,amples of household spending is categori;ed as investment rather than consumptionC a. e,penditures on durable goods such as automobiles and refrigerators b. e,penditures on intangibles items such as medical care c. e,penditures on ne1 housing d. All of the above are correct. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
2#
=hich of the follo1ing items is the one type of household e,penditure that is categori;ed as investment rather than consumptionC a. spending on education b. the purchase of stoc/s and bonds c. the purchase of a ne1 house d. the purchase of durable goods such as stoves and 1ashing machines IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
*onsider t1o items that might be included in . +: F1G the estimated rental value of o1ner%occupied housing and F#G purchases of ne1ly%constructed homes. Do1 are these t1o items accounted for 1hen . + is calculatedC a. ?oth item F1G and item F#G are included in the consumption component of . +. b. Item F1G is included in the consumption component of . +, 1hile item F#G is included in the investment component of . +. c. Item F1G is included in the investment component of . +, 1hile item F#G is included in the consumption component of . +. d. )nly item F#G is included in . +, and it is included in the investment component.
ANS: ? IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption 4 Investment -S*: Applicative 18. A <.S. publisher purchases ne1 computers that 1ere manufactured in the <.S. 'his purchase by itself ma/es a. a positive contribution both to investment and to . +. b. a positive contribution both to consumption and to . +. c. a positive contribution to . +, but it does not affect investment or consumption. d. a positive contribution to investment, but it does not affect . +.
ANS: A IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Investment 4 . + -S*: Applicative #&. A -innesota farmer buys a ne1 tractor made in Io1a by a .erman company. As a result, a. <.S. investment and . + increase, but .erman . + is unaffected. b. <.S. investment and .erman . + increase, but <.S. . + is unaffected. c. <.S. investment, <.S. . +, and .erman . + are unaffected, because tractors are intermediate goods. d. <.S. investment, <.S. . +, and .erman . + all increase.
ANS: A IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Investment 4 . + -S*: Applicative
2$
#1.

A 1ind farm in Io1a buys a large turbine generator from a S1edish%o1ned factory located in *onnecticut that uses 1or/ers 1ho live in *onnecticut. As a result, a. <.S. investment, . +, and .N+ all increase by the same amount. b. <.S. investment increases, but . + and .N+ are unaffected by the purchase. c. <.S. investment and . + increase by the same amount, but <.S. .N+ increases by a smaller amount. d. <.S. investment and .N+ increase by the same amount, but <.S. . + increases by a smaller amount.
ANS: * IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Investment 4 . + 4 .N+ -S*: Analytical ##. 'he value of goods added to a firm:s inventory in a certain year is treated as a. consumption, since the goods 1ill be sold to consumers in another period. b. saving, since the goods are being saved until they are sold in another period. c. investment, since . + aims to measure the value of the economy:s production that year. d. spending on durable goods, since the goods could not be inventoried unless they 1ere durable. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: Inventory #$.
.oods that go into inventory and are not sold during the current period are a. counted as intermediate goods and so are not included in current period . +. b. counted in current period . + only if the firm that produced them sells them to another firm. c. included in current period . + as inventory investment. d. included in current period . + as consumption. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: Inventory #0.
uring the current @uarter, a firm produces consumer goods and adds some of those goods to its inventory rather than selling them. 'he value of the goods added to inventory is a. not included in the current @uarter . +. b. included in the current @uarter . + as investment. c. included in the current @uarter . + as consumption. d. included in the current @uarter . + as a statistical discrepancy. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: ? NA': Analytic ')+: Inventory #2.
uring the third @uarter of #&&3, a firm produces consumer goods and adds some of those goods to its inventory. uring the fourth @uarter of #&&3, the firm sells the goods at a retail outlet, 1ith the result that the value of its inventory at the end of the fourth @uarter is smaller than the value of its inventory at the end of the third @uarter. 'hese actions affect 1hich componentFsG of fourth%@uarter . +C a. 'hese actions affect only consumption, and they affect consumption positively. b. 'hese actions affect only investment, and they affect investment positively. c. 'hese actions affect consumption positively and investment negatively. d. 'hese actions affect both consumption and investment positively.
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption 4 Investment -S*: Applicative

#3.
20
A movie company ma/es 2&&,&&& J s of one of its latest releases. It sells $&&,&&& of them before the end of the second @uarter, and holds the others in its 1arehouse. Do1 1ill the #&&,&&& unsold J s be treated in the . + statisticsC a. Since the J s eventually 1ill be bought by consumers, they 1ill be included as consumption in the second @uarter. b. Since the J s 1ere not purchased in the second @uarter, they 1ill be counted as an increase in third%@uarter . +. c. 'he J s 1ill be counted as a change in inventory in the second @uarter and so 1ill be included in second%@uarter . +. d. 'he J s 1ill be counted as a change in inventory in the second @uarter, and 1hen sold in the third @uarter 1ill raise third%@uarter . +.
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Inventory 4 . + -S*: Applicative #5. 'he local *hevrolet dealership has an increase in inventory of #2 cars in #&&3. In #&&5, it sells all #2 cars. =hich of the follo1ing statements is correctC a. 'he value of the cars in inventory 1ill be counted as part of #&&3 . +, and the value of the cars sold in #&&5 1ill not increase #&&5 . +. b. 'he value of the cars in inventory 1ill not affect #&&3 . +, and the value of the cars sold in #&&5 1ill increase #&&5 . +. c. 'he value of the cars in inventory 1ill be counted as part of #&&3 . +, and the value of the cars sold in #&&5 1ill increase #&&5 . +. d. 'he value of the cars in inventory 1ill not affect #&&3 . +, and the value of the cars sold in #&&5 1ill not increase #&&5 . +.
ANS: A IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Inventory 4 . + -S*: Applicative #6. A good is produced by a firm in #&&5, added to the firm7s inventory in #&&5, and sold to a household in #&&6. It follo1s that a. the value of the good is added to the investment category of #&&5 . + and added to the investment category of #&&6 . +. b. the value of the good is added to the investment category of #&&5 . + and subtracted from the investment category of #&&6 . +. c. the value of the good is subtracted from the investment category of #&&5 . + and added to the investment category of #&&6 . +. d. the value of the good is subtracted from the investment category of #&&5 . + and subtracted from the investment category of #&&6 . +. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: Investment #8.
A good is produced by a firm in #&&5, added to the firm7s inventory in #&&5, and sold to a household in #&&6. As a result, on net, a. #&&5 . + increased and #&&6 . + decreased. b. #&&5 . + decreased and #&&6 . + increased. c. #&&5 . + did not change and #&&6 . + increased. d. #&&5 . + increased and #&&6 . + did not change. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: . +
22
$&.

A good is produced by a firm in #&&5, added to the firm7s inventory in #&&5, and sold to a household in #&&6. It follo1s that a. the value of the good is added to the investment category of #&&5 . +, added to the consumption category of #&&6 . +, and subtracted from the investment category of #&&6 . +. b. the value of the good is added to the investment category of #&&5 . +, added to the consumption category of #&&6 . +, and not included in the investment category of #&&6 . +. c. the value of the good is added to the investment category of #&&5 . +, subtracted from the consumption category of #&&6 . +, and not included in the investment category of #&&6 . +. d. the value of the good is added to the investment category of #&&5 . +, subtracted from the consumption category of #&&6 . +, and added to the investment category of #&&6 . +.
ANS: A IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption 4 Investment -S*: Analytical $1. =hich of the follo1ing items is included in . +C a. the sale of stoc/s and bonds b. the sale of used goods c. the sale of services such as those performed by a doctor d. All of the above are included in . +. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: . + $#.
.overnment purchases include spending on goods and services by a. federal governments, but not by state or local governments. b. federal and state governments, but not by local governments. c. federal, state, and local governments. d. federal, state, and local governments, as 1ell household spending by employees of those governments.
ANS: * IF: 1 !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: efinitional $$. =hich of the follo1ing items is counted as part of government purchasesC a. 'he federal government pays the salary of a Navy officer. b. 'he state of Nevada pays a private firm to repair a Nevada state high1ay. c. 'he city of (as Jegas, Nevada pays a private firm to collect garbage in that city. d. All of the above are correct.
ANS: IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Applicative $0. !ecently, the <.S. national income accounts have s1itched to calling government purchases a. government spending and transfer payments. b. transfer payments and gross investment by government. c. government consumption e,penditure and gross investment. d. government 1ages, salaries, and investment e,penditure.
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: efinitional

$2. A transfer payment is a. a payment for moving e,penses a 1or/er receives 1hen he or she is transferred by an employer to a ne1 location. b. a payment that is automatically transferred from your ban/ account to pay a bill or some other obligation. c. a form of government spending that is not made in e,change for a currently produced good or service. d. the benefit that a person receives from an e,penditure by government minus the ta,es that 1ere collected by government to fund that e,penditure.
23
ANS: * IF: 1 !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: 'ransfer payments -S*: efinitional $3. 'ransfer payments a. are payments that flo1 from government to households. b. are not made in e,change for currently produced goods or services. c. alter household income, but they do not reflect the economy7s production. d. All of the above are correct.
ANS: IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: 'ransfer payments -S*: Interpretive $5. A transfer payment is a payment made by a. consumers, but not in e,change for a tangible product. b. firms, but not in e,change for capital e@uipment. c. foreigners, but not in e,change for a domestically%produced good or service. d. government, but not in e,change for a currently produced good or service.
ANS: IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: 'ransfer payments -S*: Interpretive $6. 'ransfer payments are a. included in . + because they represent income to individuals. b. included in . + because they eventually 1ill be spent on consumption. c. not included in . + because they are not payments for currently produced goods or services. d. not included in . + because ta,es 1ill have to be raised to pay for them.
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: 'ransfer payments -S*: Interpretive $8. =hich of the follo1ing represents a transfer paymentC a. Iou transfer A1,&&& from your ban/ account to a mutual fund. b. 'he government sends your grandfather his Social Security chec/. c. 'he ban/ transfers A1& in @uarterly interest to your savings account. d. Iour employer automatically transfers A1&& each month from your 1ages to a non%ta,able medical spending account.
ANS: ? IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: 'ransfer payments -S*: Applicative 0&. Social Security payments are a. included in . + because they represent payments for 1or/ performed in the past. b. included in . + because they represent potential consumption. c. e,cluded from . + because they are not private pensions. d. e,cluded from . + because they do not reflect the economy7s production.
ANS: IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: 'ransfer payments -S*: Applicative
25
01.

<nemployment compensation is a. part of . + because it represents income. b. part of . + because the recipients must have 1or/ed in the past to @ualify. c. not part of . + because it is a transfer payment. d. not part of . + because the payments reduce business profits.
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: 'ransfer payments -S*: Applicative 0#. 'o encourage formation of small businesses, the government could provide subsidies> these subsidies a. 1ould be included in . + because they are part of government purchases. b. 1ould be included in . + because they are part of investment e,penditures. c. 1ould not be included in . + because they are transfer payments. d. 1ould not be included in . + because the government raises ta,es to pay for them.
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: 'ransfer payments -S*: Applicative 0$. After the terrorist attac/s on September 11, #&&1, governments 1ithin the <nited States raised e,penditures to increase security at airports. 'hese purchases of goods and services are a. not included in . + since they do not represent production. b. not included in . + since the government collects ta,es to pay for them. c. included in . + since government e,penditures on goods and services are included in . +. d. included in . + only to the e,tent that the federal government, rather than state or local governments, paid for them.
ANS: * IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Applicative 00. =hich of the follo1ing items is counted as part of government purchasesC a. 'he federal government pays A#,&&& in Social Security benefits to a retired person. b. 'he city of es -oines, Io1a pays A1&,&&& to a tree%trimming firm to trim trees along city boulevards. c. 'he state of Io1a pays A1,&&& to help a lo1%income family pay its medical bills. d. All of the above are correct.
ANS: ? IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Applicative 02. 'he <.S. government pays an economist at the <.S. epartment of *ommerce A2&,&&& in salary in #&&3. 'he economist then retires. In #&&5, the government pays him A$&,&&& in retirement benefits. =hich of the follo1ing is correctC a. 'he #&&3 payment is included in #&&3 . + as government purchases, and the #&&5 payment is included in #&&5 . + as government purchases. b. 'he #&&3 payment is included in #&&3 . + as government purchases, but the #&&5 payment is not included in #&&5 . +. c. 'he #&&3 payment is included in #&&3 . + as government purchases, and the #&&5 payment is included in #&&5 . + as government transfer payments. d. 'he #&&3 payment is included in #&&3 . + as government purchases, and the #&&5 payment is allocated to previous years: . + according to the amount of 1or/ performed by the economist each year.
ANS: ? IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Applicative

03.
26
*onsider the follo1ing three items of spending by the government: F1G the federal government pays a A2&& unemployment benefit to an unemployed person> F#G the federal government ma/es a A#,&&& salary payment to a Navy lieutenant> F$G the city of ?o;eman, -ontana ma/es a A1&,&&& payment to A?* (ighting *ompany for street lights in ?o;eman. =hich of these payments contributes directly to government purchases in the national income accountsC a. only item F1G b. only item F#G c. only items F1G and F#G d. only items F#G and F$G
ANS: IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Applicative 05. =hich of the follo1ing subcomponents of . + can be either positive or negativeC a. inventory investment b. e,ports c. government purchases d. All of the above are correct. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
Net e,ports e@ual a. e,ports plus imports. b. e,ports minus imports. c. imports minus e,ports. d. . + minus imports. IF: 1 !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: ? NA': Analytic ')+: Net e,ports 08.
=hich of the follo1ing components or subcomponents of . + can be either positive or negativeC a. consumers: spending on durable goods b. firms: spending on capital e@uipment c. net e,ports d. All of the above are correct. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: . + 2&.
If net e,ports is a negative number for a particular year, then a. the value of firms7 inventories declined over the course of the year. b. consumption e,ceeded the sum of investment and government purchases during the year. c. the value of goods sold to foreigners e,ceeded the value of foreign goods purchased during the year. d. the value of foreign goods purchased e,ceeded the value of goods sold to foreigners during the year. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: NA': Analytic ')+: Net e,ports 21.
If a <.S. citi;en buys a television made in Korea by a Korean firm, then a. <.S. net e,ports decrease and <.S. . + decreases. b. <.S. net e,ports are unaffected and <.S. . + decreases. c. <.S. net e,ports are unaffected and <.S. . + is unaffected. d. <.S. net e,ports decrease and <.S. . + is unaffected.
ANS: IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Net e,ports 4 . + -S*: Applicative
28
2#.

A .erman citi;en buys an automobile produced in the <nited States by a Eapanese company. As a result, a. <.S. net e,ports increase, <.S. . + is unaffected, Eapanese .N+ increases, .erman net e,ports decrease, and .erman .N+ and . + are unaffected. b. <.S. net e,ports and . + increase, Eapanese .N+ increases, .erman net e,ports decrease, and .erman .N+ is unaffected, and .erman . + decreases. c. <.S. net e,ports and . + increase, Eapanese .N+ increases, .erman net e,ports decrease, and .erman .N+ and . + are unaffected. d. <.S. net e,ports and . + are unaffected, Eapanese .N+ increases, and .erman net e,ports, .N+, and . + decrease.
ANS: * IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Net e,ports 4 . + 4 .N+ -S*: Analytical 2$. If a <.S. citi;en buys a dress made in Nepal by a Nepalese firm, then a. <.S. consumption increases, <.S. net e,ports decrease, and <.S. . b. <.S. consumption increases, <.S. net e,ports decrease, and <.S. . c. <.S. consumption decreases, <.S. net e,ports increase, and <.S. . d. <.S. consumption decreases, <.S. net e,ports increase, and <.S. . + decreases. + is unaffected. + increases. + is unaffected.
ANS: ? IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption 4 Net e,ports 4 . + -S*: Analytical 20. =hen an American household purchases a bottle of Italian 1ine for A1&&, a. <.S. consumption does not change, <.S. net e,ports decrease by A1&&, and <.S. . + decreases by A1&&. b. <.S. consumption does not change, <.S. net e,ports increase by A1&&, and <.S. . + increases by A1&&. c. <.S. consumption increases by A1&&, <.S. net e,ports decrease by A1&&, and <.S. . + does not change. d. <.S. consumption increases by A1&&, <.S. net e,ports do not change, and <.S. . + increases by A1&&.
ANS: * IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: *onsumption 4 Net e,ports 4 . + -S*: Analytical 22. =hen an "gyptian firm purchases a cement mi,er from Slova/ia, a. "gyptian investment does not change, "gyptian net e,ports decrease, "gyptian . + decreases, Slova/ian net e,ports increase, and Slova/ian . + increases. b. "gyptian investment increases, "gyptian net e,ports decrease, "gyptian . + is unaffected, Slova/ian net e,ports increase, and Slova/ian . + increases. c. "gyptian investment decreases, "gyptian net e,ports increase, "gyptian . + is unaffected, Slova/ian net e,ports decrease, and Slova/ian . + decreases. d. "gyptian investment increases, "gyptian net e,ports do not change, "gyptian . + increases, Slova/ian net e,ports do not change, and Slova/ian . + is unaffected.
ANS: ? IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Investment 4 Net e,ports 4 . + -S*: Analytical 23. 'he <.S. Air Force pays a 'ur/ish citi;en A$&,&&& to 1or/ on a <.S. base in 'ur/ey. As a result, a. <.S. government purchases increase by A$&,&&&> <.S. net e,ports decrease by A$&,&&&> and <.S. . + is unaffected. b. <.S. government purchases increase by A$&,&&&> <.S. net e,ports are unaffected> and <.S. . + increases by A$&,&&&. c. <.S. government purchases, net e,ports, and . + are unaffected. d. <.S. government purchases are unaffected> <.S. net e,ports decrease by A$&,&&&> and <.S. . + decreases by A$&,&&&.
ANS: A IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases 4 Net e,ports 4 . + -S*: Analytical

25. An Io1an receives a Social Security chec/ for A2&&, 1hich he uses to purchase a A06& television made in Eapan by a Eapanese firm and a A#& dinner at a local restaurant. As a result, <.S. . + a. does not change. b. increases by A#&. c. increases by A2#&. d. increases by A1&&&. IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
3&
ANS: ? NA': Analytic ')+: . + 26.
An American soldier stationed in *alifornia receives a paychec/ from the federal government for A2&&, 1hich she uses to purchase a A$&& stereo made in Korea by a Korean firm and A#&& 1orth of groceries produced in *alifornia. As a result, <.S. . + increases by a. A#&&. b. A2&&. c. A5&&. d. A1&&&. IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: * NA': Analytic ')+: . + 28.
In the economy of =re,ington in #&&6, consumption 1as A1&&&, e,ports 1ere A1&&, government purchases 1ere A02&, imports 1ere A12&, and investment 1as A$2&. =hat 1as =re,ington7s . + in #&&6C a. A152& b. A162& c. A18&& d. A#&2& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: . + 3&.
In the economy of =re,ington in #&&6, consumption 1as A2&&&, e,ports 1ere A1&&, government purchases 1ere A8&&, imports 1ere A#&&, and investment 1as A1&&&. =hat 1as =re,ington7s . + in #&&6C a. A35&& b. A36&& c. A5&&& d. A5#&& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + 31.
In the economy of =re,ington in #&&6, e,ports 1ere A#&&, . + 1as A#&&&, government purchases 1ere A$&&, imports 1ere A1$&, and investment 1as A0&&. =hat 1as =re,ington7s consumption in #&&6C a. A85& b. A1#$& c. A1$5& d. A13$& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: *onsumption 3#.
In the economy of =re,ington in #&&6, e,ports 1ere A2&&, . + 1as A30&&, government purchases 1ere A12&&, imports 1ere A3&&, and investment 1as A#&&&. =hat 1as =re,ington7s consumption in #&&6C a. A16&& b. A#6&& c. A$&&& d. A0&&&
31

IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: *onsumption 3$.
In the economy of =re,ington in #&&6, consumption 1as A3&&&, e,ports 1ere A1&&&, . + 1as A1&,&&&, government purchases 1ere A#&&&, and imports 1ere A3&&. =hat 1as =re,ington7s investment in #&&6C a. A10&& b. A13&& c. A#0&& d. A$3&& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: Investment 30.
In the economy of =re,ington in #&&6, consumption 1as A$&&&, e,ports 1ere A#&&, . + 1as A6&&&, government purchases 1ere A1&&&, and imports 1ere A3&&. =hat 1as =re,ington7s investment in #&&6C a. A$#&& b. A$3&& c. A$6&& d. A00&& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: Investment 32.
In the economy of =re,ington in #&&6, consumption 1as A$&&&, e,ports 1ere A0&&, . + 1as A2&&&, imports 1ere A3&&, and investment 1as A11&&. =hat 1ere =re,ington7s government purchases in #&&6C a. A$&& b. A2&& c. A5&& d. A11&&
ANS: IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Applicative 33. In the economy of =re,ington in #&&6, consumption 1as A0&&&, e,ports 1ere A6&&, . + 1as A82&&, imports 1ere A#&&, and investment 1as A1&&&. =hat 1ere =re,ington7s government purchases in #&&6C a. A$5&& b. A$8&& c. A21&& d. A22&&
ANS: ? IF: # !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Applicative 35. In the economy of =re,ington in #&&6, consumption 1as A#&&, e,ports 1ere A2&, . + 1as A$#2, government purchases 1ere A1&&, imports 1ere A1#2, and investment 1as A1&&. =hat 1ere =re,ington7s net e,ports in #&&6C a. %A52 b. %A2& c. A2& d. A52 IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: Net e,ports

36.
3#
In the economy of =re,ington in #&&6, consumption 1as A6&&, . + 1as A#&&&, government purchases 1ere A0&&, and investment 1as A3&&. =hat 1ere =re,ington7s net e,ports in #&&6C a. %A#&& b. A#&& c. A16&& d. Net e,ports cannot be calculated from the information given. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: Net e,ports 38.
In the economy of =re,ington in #&&6, consumption 1as A1&&&, . + 1as A182&, government purchases 1ere A2&&, and investment 1as A5&&. =hat 1ere =re,ington7s net e,ports in #&&6C a. %A#2& b. A#2& c. A##&& d. Net e,ports cannot be calculated from the information given. IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: Net e,ports 5&.
In the economy of =re,ington in #&&6, consumption 1as A2$&&, . + 1as A66&&, government purchases 1ere A16&&, imports 1ere A2&&, and investment 1as A#&&&. =hat 1ere =re,ington7s e,ports in #&&6C a. %A6&& b. %A$&& c. A#&& d. A$&& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: ",ports 51.
In the economy of =re,ington in #&&6, consumption 1as A$&&&, . + 1as A22&&, government purchases 1ere A1&&&, imports 1ere A#&&&, and investment 1as A1&&&. =hat 1ere =re,ington7s e,ports in #&&6C a. %A12&& b. A2&& c. A12&& d. A#2&& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: ",ports 5#.
In the economy of =re,ington in #&&6, consumption 1as A#&&&, e,ports 1ere A6&&, . + 1as A06&&, government purchases 1ere A60&, and investment 1as A10&&. =hat 1ere =re,ington7s imports in #&&6C a. %A23& b. %A#0& c. A#0& d. A23& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: Imports 5$.
In the economy of =re,ington in #&&6, consumption 1as A2&&, e,ports 1ere A#&&, . + 1as A1#&&, government purchases 1ere A#2&, and investment 1as A$&&. =hat 1ere =re,ington7s imports in #&&6C a. %A12& b. %A2& c. A2& d. A12& IF: # !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: Imports
3$
50.

In the economy of =re,ington in #&&6, consumption 1as one%half of . +, government purchases 1ere A#&&& more than investment, investment 1as one%si,th of . +, and the value of imports e,ceeded the value of e,ports by A2&&. =hat 1as =re,ington7s . + in #&&6C a. A$&&& b. A02&& c. A8&&& d. A12,&&& IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: * NA': Analytic ')+: . + 52.
In the economy of =re,ington in #&&6, consumption 1as 3&B of . +, government purchases 1ere A#1#, imports 1ere A35 and 35B of the value of e,ports, investment 1as one%half of the value of consumption. =hat 1as =re,ington7s . + in #&&6C a. A102& b. A158& c. A#022 d. A#58& IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: * NA': Analytic ')+: . + Table 23-2
'he table belo1 contains data for the country of =re,ington for the year #&&6. Dousehold purchases of durable goods Dousehold purchases of nondurable goods Dousehold purchases of services Dousehold purchases of ne1 housing +urchases of capital e@uipment Inventory changes +urchases of ne1 structures epreciation Salaries of government 1or/ers .overnment e,penditures on public 1or/s 'ransfer payments Foreign purchases of domestically produced goods omestic purchases of foreign goods 53. A1#8$ A1515 A$&1 A5&0 A$1& A$50 A311 A115 A10## A22$ A555 A66 A1#&
Re*er to Ta-.e 23$2/ =hat 1as =re,ington7s . + in #&&6C a. A3$28 b. A51$3 c. A5#2$ d. A6105 IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: * NA': Analytic ')+: . + 55.
Re*er to Ta-.e 23$2/ =hat 1as =re,ington7s consumption in #&&6C a. A#&16 b. A$&1& c. A$$11 d. A0&12 IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: * NA': Analytic ')+: *onsumption

56. Re*er to Ta-.e 23$2/ =hat 1as =re,ington7s investment in #&&6C a. A1156 b. A1#82 c. A166# d. A1888 IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
30
ANS: NA': Analytic ')+: Investment 58.
Re*er to Ta-.e 23$2/ =hat 1ere =re,ington7s government purchases in #&&6C a. A22$ b. A1186 c. A1852 d. A#52#
ANS: * IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Analytical 6&. Re*er to Ta-.e 23$2/ =hat 1ere =re,ington7s e,ports in #&&6C a. %A$# b. A$# c. A66 d. A1#& IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: * NA': Analytic ')+: ",ports 61.
Re*er to Ta-.e 23$2/ =hat 1ere =re,ington7s imports in #&&6C a. %A$# b. A$# c. A66 d. A1#& IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: NA': Analytic ')+: Imports 6#.
Re*er to Ta-.e 23$2/ =hat 1ere =re,ington7s net e,ports in #&&6C a. %A$# b. A$# c. A66 d. A1#& IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: A NA': Analytic ')+: Net e,ports
32
Table 23-3 'he table belo1 contains data for the country of =re,ington for the year #&&6. 'otal income Dousehold purchases of durable goods Dousehold purchases of nondurable goods Dousehold purchases of non%education services Dousehold purchases of education services Dousehold purchases of ne1 housing +urchases of capital e@uipment Inventory changes +urchases of ne1 structures epreciation (ocal government spending on goods and services State government spending on goods and services Federal government spending on goods and services 'ransfer payments Foreign purchases of domestically produced goods omestic purchases of foreign goods 6$. A25$1 A11&6 A5&# A#&$ A$&# A613 A$$$ A52 A#35 A0&1 A#$3 A018 A116# A5&5 A#15 A1#8
Re*er to Ta-.e 23$3/ =hat 1as =re,ington7s . + in #&&6C a. A03#$ b. A25$1 c. A3&$5 d. A36$8 IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: ? NA': Analytic ')+: . + 60.
Re*er to Ta-.e 23$3/ =hat 1as =re,ington7s consumption in #&&6C a. A161& b. A#&1$ c. A#$12 d. A$1$1 IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
Re*er to Ta-.e 23$3/ =hat 1as =re,ington7s investment in #&&6C a. A352 b. A1&8& c. A1081 d. A158$ IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
Re*er to Ta-.e 23$3/ =hat 1ere =re,ington7s government purchases in #&&6C a. A11$& b. A13&1 c. A16$5 d. A#200
ANS: * IF: $ !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: Analytical

65. Re*er to Ta-.e 23$3/ =hat 1ere =re,ington7s net e,ports in #&&6C a. %A#15 b. %A66 c. A66 d. A#15 IF: $ !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: Analytical
33
ANS: * NA': Analytic ')+: Net e,ports 66.
In #&&5, <.S. . + 1as almost a. A1& trillion. b. A10 trillion. c. A03 trillion. d. A$&# trillion. IF: 1 !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: ? NA': Analytic ')+: . + 68.
In #&&5, . + per person in the <nited States 1as almost a. A1&,&&&. b. A10,&&&. c. A$#,&&&. d. A03,&&&.
ANS: IF: 1 !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + per person -S*: efinitional 8&. In the <nited States in #&&5, consumption represented appro,imately a. 2 percent of . +. b. 12 percent of . +. c. 18 percent of . +. d. 5& percent of . +. IF: 1 !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: NA': Analytic ')+: *onsumption 81.
In the <nited States in #&&5, purchases of capital e@uipment, inventories, and structures represented appro,imately a. 2 percent of . +. b. 12 percent of . +. c. 18 percent of . +. d. 5& percent of . +. IF: 1 !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: ? NA': Analytic ')+: Investment 8#.
In the <nited States in #&&5, government purchases of goods and services 1ere a. larger than consumption, but smaller than investment. b. larger than investment, but smaller than consumption. c. smaller than both consumption and investment. d. larger than both consumption and investment.
ANS: ? IF: 1 !"F: #$%$ NA': Analytic ()*: 'he study of economics and definitions of economics ')+: .overnment purchases -S*: efinitional
35
8$.

In #&&5, <.S. net e,ports 1ere a. positive and about # percent the si;e of . b. positive and about 2 percent the si;e of . c. negative and about # percent the si;e of . d. negative and about 2 percent the si;e of . +. +. +. +.
ANS: NA': Analytic ')+: Net e,ports
IF: 1 !"F: #$%$ ()*: 'he study of economics and definitions of economics -S*: efinitional
Sec#0 $ Measuring a Nation's Income $ Rea. 1ersus Nomina. +,%

MULTI%LE C !ICE 1. If total spending rises from one year to the ne,t, then a. the economy must be producing a larger output of goods and services. b. goods and services must be selling at higher prices. c. either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both. d. employment or productivity must be rising.
ANS: * IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: efinitional #. If total spending rises from one year to the ne,t, then 1hich of the follo1ing could not be trueC a. the economy is producing a smaller output of goods and services, and goods and services are selling at higher prices b. the economy is producing a larger output of goods and services, and goods and services are selling at lo1er prices c. the economy is producing a larger output of goods and services, and goods and services are selling at higher prices d. the economy is producing a smaller output of goods and services, and goods and services are selling at lo1er prices
ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: Interpretive $. =hen studying changes in the economy over time, economists 1ant a measure of the total @uantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other 1ords, economists 1ant to study a. nominal . +. b. real . +. c. the . + deflator. d. .N+. IF: 1 !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: ? NA': Analytic ')+: !eal . + 0.
!eal . + is the yearly production of final goods and services valued at a. current prices. b. constant prices. c. e,pected future prices. d. the ratio of current prices to constant prices. IF: 1 !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: ? NA': Analytic ')+: !eal . +

2. =hich of the follo1ing statements about . + is correctC a. Nominal . + values production at current prices, 1hereas real . + values production at constant prices. b. Nominal . + values production at constant prices, 1hereas real . + values production at current prices. c. Nominal . + values production at mar/et prices, 1hereas real . + values production at the cost of the resources used in the production process. d. Nominal . + consistently underestimates the value of production, 1hereas real . + consistently overestimates the value of production.
36
ANS: A IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + -S*: Interpretive 3. =hich of the follo1ing is correctC a. Nominal . + measures base%year production using base%year prices, 1hereas real . + measures current production using current prices. b. Nominal . + measures current production using base%year prices, 1hereas real . + measures current production using current prices. c. Nominal . + measures current production using current prices, 1hereas real . + measures base% year production using base%year prices. d. Nominal . + measures current production using current prices, 1hereas real . + measures current production using base%year prices.
ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + -S*: Interpretive 5. =hich of the follo1ing is correctC a. Nominal . + never e@uals real . +. b. Nominal . + al1ays e@uals real . +. c. Nominal . + e@uals real . + in the base year. d. Nominal . + e@uals real . + in all years but the base year.
ANS: * IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + -S*: Interpretive 6. *hanges in nominal . + reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.
ANS: * IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: Interpretive 8. *hanges in real . + reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: ? NA': Analytic ')+: !eal . + 1&.
=hich of the follo1ing statements about nominal . + and real . + is correctC a. Nominal . + is a better gauge of economic 1ell%being than is real . +. b. !eal . + is a better gauge of economic 1ell%being than is nominal . +. c. !eal . + and nominal . + are e@ually good measures of economic 1ell%being. d. Nominal . + reflects the economy7s ability to satisfy people7s needs and desires, but !eal . + does not.
38
ANS: ? IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + -S*: Interpretive 11. =hen economists tal/ about gro1th in the economy, they measure that gro1th as the a. absolute change in nominal . + from one period to another. b. percentage change in nominal . + from one period to another. c. absolute change in real . + from one period to another. d. percentage change in real . + from one period to another.
ANS: IF: 1 !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: "conomic gro1th -S*: efinitional 1#. 'he . + deflator is the ratio of a. real . + to nominal . + multiplied by 1&&. b. real . + to the inflation rate multiplied by 1&&. c. nominal . + to real . + multiplied by 1&&. d. nominal . + to the inflation rate multiplied by 1&&. IF: 1 !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: * NA': Analytic ')+: . + deflator 1$.
*hanges in the . + deflator reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: A NA': Analytic ')+: . + deflator 10.
'he . + deflator for years subse@uent to the base year measures the change in a. nominal . + from the base year that cannot be attributable to a change in real . +. b. real . + from the base year that cannot be attributable to a change in nominal . +. c. nominal . + from the base year that cannot be attributable to a change in prices. d. real . + from the base year that cannot be attributable to a change in prices. IF: 1 !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: A NA': Analytic ')+: . + deflator 12.
In the base year, the . + deflator is al1ays a. %1. b. &. c. 1. d. 1&&. IF: 1 !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: NA': Analytic ')+: . + deflator 13.
'he term economists use to describe a situation in 1hich the economy7s overall price level is rising is a. gro1th. b. inflation. c. recession. d. e,pansion. IF: 1 !"F: #$%0 ()*: <nemployment and inflation ')+: Inflation
ANS: ? NA': Analytic -S*: efinitional

15. 'he inflation rate is the a. absolute change in real . + from one period to another. b. percentage change in real . + from one period to another. c. absolute change in the price level from one period to another. d. percentage change in the price level from one period to another. IF: 1 !"F: #$%0 ()*: <nemployment and inflation ')+: Inflation
5&
ANS: NA': Analytic -S*: efinitional 16.
'he inflation rate in year # e@uals a. b. c. d.
. . . .
ANS: A NA': Analytic -S*: efinitional 18.
IF: 1 !"F: #$%0 ()*: <nemployment and inflation
')+:
Inflation
If real . + doubles and the . + deflator doubles, then nominal . + a. remains constant. b. doubles. c. triples. d. @uadruples.
ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: Applicative #&. If nominal . + doubles and the . + deflator doubles, then real . + a. remains constant. b. doubles. c. triples. d. @uadruples. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: !eal . + #1.
In the economy of =re,ington in #&&6, real . + 1as A2 trillion and the . + deflator 1as #&&. =hat 1as =re,ington7s nominal . + in #&&6C a. A#.2 trillion b. A1& trillion c. A0& trillion d. A1&& trillion
ANS: ? IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: Applicative ##. In the economy of =re,ington in #&&6, real . + 1as A#2 billion and the . + deflator 1as 36. =hat 1as =re,ington7s nominal . + in #&&6C a. A#.5# billion b. A15 billion c. A$3.6 billion d. A0$ billion
51
ANS: ? IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: Applicative #$. In the economy of =re,ington in #&&6, nominal . + 1as A16 billion and the . + deflator 1as 1#&. =hat 1as =re,ington7s real . + in #&&6C a. A3.5 billion b. A12 billion c. A#1.3 billion d. A$6 billion IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: !eal . + #0.
In the economy of =re,ington in #&&6, nominal . + 1as A#& billion and the . + deflator 1as 2&. =hat 1as =re,ington7s real . + in #&&6C a. A#.2 billion b. A1& billion c. A0& billion d. A1&& billion IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: !eal . + #2.
In the economy of =re,ington in #&&6, nominal . + 1as A1& trillion and real . + 1as A0 trillion. =hat 1as =re,ington7s . + deflator in #&&6C a. #2 b. 0& c. #2& d. 0&& IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: . + deflator #3.
In the economy of =re,ington in #&&6, nominal . + 1as A#6 trillion and real . + 1as A$# trillion. =hat 1as =re,ington7s . + deflator in #&&6C a. 65.2 b. 110.$ c. 0&& d. 683 IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: . + deflator #5.
If nominal . + is A1& trillion and real . + is A6 trillion, then the . + deflator is a. 6&, and this indicates that the price level has decreased by #& percent since the base year. b. 6&, and this indicates that the price level has increased by 6& percent since the base year. c. 1#2, and this indicates that the price level has increased by #2 percent since the base year. d. 1#2, and this indicates that the price level has increased by 1#2 percent since the base year.
ANS: * IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + deflator 4 Inflation rate -S*: Applicative #6. If nominal . + is A6 trillion and real . + is A1& trillion, then the . + deflator is a. 6&, and this indicates that the price level has decreased by #& percent since the base year. b. 6&, and this indicates that the price level has increased by 6& percent since the base year. c. 1#2, and this indicates that the price level has increased by #2 percent since the base year. d. 1#2, and this indicates that the price level has increased by 1#2 percent since the base year.

ANS: A IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + deflator 4 Inflation rate -S*: Applicative #8.
5#
Suppose an economy7s production consists only of corn and soybeans. In #&&2, #& bushels of corn are sold at A0 per bushel and 1& bushels of soybeans are sold at A# per bushel. In #&&0, the price of corn 1as A# per bushel and the price of soybeans 1as A1 per bushel. <sing #&&0 as the base year, it follo1s that, for #&&2, a. nominal . + is A2&, real . + is A1&&, and the . + deflator is 2&. b. nominal . + is A2&, real . + is A1&&, and the . + deflator is #&&. c. nominal . + is A1&&, real . + is A2&, and the . + deflator is 2&. d. nominal . + is A1&&, real . + is A2&, and the . + deflator is #&&.
ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + 4 . + deflator -S*: Applicative $&. Suppose an economy produces only eggs and ham. In #&&2, 1&& do;en eggs are sold at A$ per do;en and 2& pounds of ham are sold at A0 per pound. In #&&0, the base year, eggs sold at A1.2& per do;en and ham sold at A2 per pound. For #&&2, a. nominal . + is A0&&, real . + is A2&&, and the . + deflator is 6&. b. nominal . + is A0&&, real . + is A2&&, and the . + deflator is 1#2. c. nominal . + is A2&&, real . + is A0&&, and the . + deflator is 6&. d. nominal . + is A2&&, real . + is A0&&, and the . + deflator is 1#2.
ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + 4 . + deflator -S*: Applicative $1. Suppose an economy produces only cranberries and maple syrup. In #&&3, 2& units of cranberries are sold at A#& per unit and 1&& units of maple syrup are sold at A6 per unit. In #&&2, the base year, the price of cranberries 1as A1& per unit and the price of maple syrup 1as A12 per unit. For #&&3, a. nominal . + is A16&&, real . + is A#&&&, and the . + deflator is 8&. b. nominal . + is A16&&, real . + is A#&&&, and the . + deflator is 111.1. c. nominal . + is A#&&&, real . + is A16&&, and the . + deflator is 8&. d. nominal . + is A#&&&, real . + is A16&&, and the . + deflator is 111.1.
ANS: A IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + 4 . + deflator -S*: Applicative $#. Suppose an economy produces only cheese and fish. In #&&6, #& units of cheese are sold at A2 each and 6 units of fish are sold at A2& each. In #&&5, the base year, the price of cheese 1as A1& per unit and the price of fish 1as A52 per unit. For #&&6, a. nominal . + is A2&&, real . + is A6&&, and the . + deflator is 3#.2. b. nominal . + is A2&&, real . + is A6&&, and the . + deflator is 13&. c. nominal . + is A6&&, real . + is A2&&, and the . + deflator is 3#.2. d. nominal . + is A6&&, real . + is A2&&, and the . + deflator is 13&.
ANS: A IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + 4 . + deflator -S*: Applicative $$. A country reported nominal . + of A1&& billion in #&&6 and A52 billion in #&&5. It also reported a . + deflator of 1#2 in #&&6 and 1#& in #&&5. ?et1een #&&5 and #&&6, a. real output and the price level both rose. b. real output rose and the price level fell. c. real output fell and the price level rose. d. real output and the price level both fell.
ANS: A IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 +rice level -S*: Applicative
5$
$0.

A country reported nominal . + of A#&& billion in #&&6 and A16& billion in #&&5. It also reported a . + deflator of 1#2 in #&&6 and 1&2 in #&&5. ?et1een #&&5 and #&&6, a. real output and the price level both rose. b. real output rose and the price level fell. c. real output fell and the price level rose. d. real output and the price level both fell.
ANS: * IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 +rice level -S*: Applicative $2. A country reported a nominal . + of A112 billion in #&&6 and A1#2 billion in #&&5. It also reported a . + deflator of 62 in #&&6 and 1&& in #&&5. ?et1een #&&5 and #&&6, a. real output and the price level both rose. b. real output rose and the price level fell. c. real output fell and the price level rose. d. real output and the price level both fell.
ANS: ? IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 +rice level -S*: Applicative $3. A country reported a nominal . + of A62 billion in #&&6 and A1&& billion in #&&5. It also reported a . + deflator of 1&& in #&&6 and 1&2 in #&&5. ?et1een #&&5 and #&&6, a. real output and the price level both rose. b. real output rose and the price level fell. c. real output fell and the price level rose. d. real output and the price level both fell.
ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 +rice level -S*: Applicative Table 23-4 'he table belo1 contains data for the country of achsland, 1hich produces only pret;els and boo/s. 'he base year is #&&2. Iear #&&2 #&&3 #&&5 #&&6 $5. +rice of +ret;els A0.&& A0.&& A2.&& A3.&& Luantity of +ret;els 8& 1&& 1#& 12& +rice of ?oo/s A1.2& A#.&& A#.2& A$.2& Luantity of ?oo/s 12& 16& #&& #&&
Re*er to Ta-.e 23$0/ In #&&2, achsland7s a. nominal . + 1as greater than real . +, and the . + deflator 1as greater than 1&&. b. nominal . + 1as e@ual to real . +, and the . + deflator 1as e@ual to 1. c. nominal . + 1as less than real . +, and the . + deflator 1as less than 1&&. d. nominal . + 1as e@ual to real . +, and the . + deflator 1as e@ual to 1&&.
ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + 4 . + deflator -S*: Applicative $6. Re*er to Ta-.e 23$0/ In #&&3, achsland7s a. nominal . + 1as A262, real . + 1as A33&, and the . b. nominal . + 1as A262, real . + 1as A35&, and the . c. nominal . + 1as A53&, real . + 1as A33&, and the . d. nominal . + 1as A53&, real . + 1as A35&, and the . + deflator 1as 66.3. + deflator 1as 65.$. + deflator 1as 112.#. + deflator 1as 11$.0.

ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + 4 . + deflator -S*: Applicative $8. Re*er to Ta-.e 23$0/ In #&&5, achsland7s a. nominal . + 1as A262, real . + 1as A56&, and the . + deflator 1as 52. b. nominal . + 1as A262, real . + 1as A6#2, and the . + deflator 1as 5&.8. c. nominal . + 1as A11&&, real . + 1as A56&, and the . + deflator 1as 101.&. d. nominal . + 1as A11&&, real . + 1as A6#2, and the . + deflator 1as 1$$.$.
50
ANS: * IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + 4 . + deflator -S*: Applicative 0&. Re*er to Ta-.e 23$0/ In #&&6, achsland7s a. nominal . + 1as A262, real . + 1as A8&&, and the . + deflator 1as 32. b. nominal . + 1as A262, real . + 1as A1&32, and the . + deflator 1as 20.8. c. nominal . + 1as A13&&, real . + 1as A8&&, and the . + deflator 1as 155.6. d. nominal . + 1as A13&&, real . + 1as A1&32, and the . + deflator 1as 12&.#.
ANS: * IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + 4 !eal . + 4 . + deflator -S*: Applicative 01. Re*er to Ta-.e 23$0/ achsland7s real . + 1as a. A262 in #&&3, A262 in #&&5, and A262 in #&&6. b. A33& in #&&3, A6#2 in #&&5, and A1&32 in #&&6. c. A35& in #&&3, A56& in #&&5, and A8&& in #&&6. d. A53& in #&&3, A11&& in #&&5, and A13&& in #&&6. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: !eal . + 0#.
Re*er to Ta-.e 23$0/ achsland7s output gre1 a. #8.8B from #&&2 to #&&3. b. $$.$B from #&&3 to #&&5. c. #0.$B from #&&3 to #&&5. d. 12.0B from #&&5 to #&&6. IF: $ !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Analytical achsland7s inflation rate from #&&3 to #&&5 1as
ANS: NA': Analytic ')+: !eal . + 0$.
Re*er to Ta-.e 23$0/ a. 13.0B. b. #0.$B. c. 01.&B. d. 00.5B.
ANS: ? NA': Analytic -S*: Applicative 00.
IF: # !"F: #$%0 ()*: <nemployment and inflation
')+:
Inflation rate
Re*er to Ta-.e 23$0/ a. 12.0B. b. #3.1B. c. 02.2B. d. 55.6B.
achsland7s inflation rate from #&&5 to #&&6 1as
ANS: ? NA': Analytic -S*: Applicative
IF: # !"F: #$%0 ()*: <nemployment and inflation
')+:
Inflation rate
52
Table 23-5 'he table belo1 contains data for the country of ?atterland, 1hich produces only 1affles and panca/es. 'he base year is #&&3. Iear #&&2 #&&3 #&&5 #&&6 02. +rice of =affles A# A# A$ A0 Luantity of =affles 1&& 1#& 12& 16& +rice of +anca/es A1 A# A$ A$ Luantity of +anca/es 1&& 12& #&& ##&
Re*er to Ta-.e 23$2/ In #&&2, ?atterland7s nominal . + 1as a. A$&&. b. A$8&. c. A0&&. d. A20&.
ANS: A IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: Applicative 03. Re*er to Ta-.e 23$2/ In #&&3, ?atterland7s nominal . + 1as a. A1&&. b. A$8&. c. A0&&. d. A20&.
ANS: IF: # !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: Nominal . + -S*: Applicative 05. Re*er to Ta-.e 23$2/ In #&&2, ?atterland7s real . + 1as a. A$&&. b. A$8&. c. A0&&. d. A20&. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: * NA': Analytic ')+: !eal . + 06.
Re*er to Ta-.e 23$2/ In #&&3, ?atterland7s real . + 1as a. A1&&. b. A$8&. c. A0&&. d. A20&. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: NA': Analytic ')+: !eal . + 08.
Re*er to Ta-.e 23$2/ In #&&5, ?atterland7s real . + 1as a. A20&. b. A5&&. c. A61&. d. A1&2&. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: !eal . +

2&. Re*er to Ta-.e 23$2/ In #&&6, ?atterland7s real . + 1as a. A20&. b. A6&&. c. A8$&. d. A1$6&. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
53
ANS: ? NA': Analytic ')+: !eal . + 21.
Re*er to Ta-.e 23$2/ In #&&2, ?atterland7s . + deflator 1as a. 52. b. 1&&. c. 1$$.$. d. 'his cannot be calculated from the information given. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: A NA': Analytic ')+: . + deflator 2#.
Re*er to Ta-.e 23$2/ In #&&3, ?atterland7s . + deflator 1as a. 1. b. 1&&. c. 1$6.2. d. 20&. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . + deflator 2$.
Re*er to Ta-.e 23$2/ In #&&5, ?atterland7s . + deflator 1as a. 33.5. b. 1&&. c. 1#8.3. d. 12&. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
Re*er to Ta-.e 23$2/ In #&&6, ?atterland7s . + deflator 1as a. 26.&. b. 1&&. c. 106.1. d. 15#.2. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Applicative
Re*er to Ta-.e 23$2/ From #&&5 to #&&6, ?atterland7s output gre1 a. 10.$B. b. $1.0B. c. 06.1B. d. 122.3B. IF: $ !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Analytical
ANS: A NA': Analytic ')+: !eal . + 23.
Re*er to Ta-.e 23$2/ ?atterland7s inflation rate from #&&2 to #&&3 1as a. %#2B. b. #2B. c. $$.$B. d. 1&&B.
55

IF: # !"F: #$%0 ()*: <nemployment and inflation ')+: Inflation rate
ANS: * NA': Analytic -S*: Applicative 25.
Re*er to Ta-.e 23$2/ ?atterland7s inflation rate from #&&5 to #&&6 1as a. 12B. b. ##.2B. c. $$.$B. d. 5#.2B. IF: # !"F: #$%0 ()*: <nemployment and inflation ')+: Inflation rate
ANS: A NA': Analytic -S*: Applicative Table 23-6
'he table belo1 contains data for the country of 'ogogo. 'he base year is 1850. Iear 1850 1852 1853 1855 26. Nominal . + A#&&& A$&&& A$52& A3&&& . + eflator 1&& 1#& 12& #&&
Re*er to Ta-.e 23$3/ =hich of the follo1ing is not correctC a. 'his economy e,perienced gro1th from 1850 to 1852. b. 'his economy e,perienced gro1th from 1852 to 1853. c. 'his economy e,perienced gro1th from 1853 to 1855. d. 'his economy e,perienced inflation from 1850 to 1852, from 1852 to 1853, and from 1853 to 1855.
ANS: ? IF: $ !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 Inflation -S*: Analytical 28. Re*er to Ta-.e 23$3/ From 1852 to 1853, a. inflation 1as #2B and output did not gro1. b. inflation 1as #2B and output gre1. c. inflation 1as 2&B and output did not gro1. d. inflation 1as 2&B and output gre1.
ANS: A IF: $ !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 Inflation rate -S*: Analytical 3&. Re*er to Ta-.e 23$3/ From 1853 to 1855, a. inflation 1as $$.$B and output gre1 at a rate of #&B. b. inflation 1as $$.$B and output gre1 at a rate of 3&B. c. inflation 1as 2&B and output gre1 at a rate of #&B. d. inflation 1as 2&B and output gre1 at a rate of 3&B.
ANS: A IF: $ !"F: #$%0 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + 4 Inflation rate -S*: Analytical 31. =hich of the follo1ing is not a correct statement about the gro1th of real . + in the <.S. economyC a. !eal . + in #&&0 1as almost four times its 1832 level. b. .ro1th 1as steady bet1een 1832 and #&&0. c. *ontinued gro1th in real . + enables the typical American to enjoy greater economic prosperity than his or her parents and grandparents did. d. 'he output of goods and services produced gre1 on average about $.# percent per year bet1een 1832 and #&&0.

ANS: ? NA': Analytic ')+: !eal . + 3#. IF: 1 !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: efinitional
56
A recession has traditionally been defined as a period during 1hich a. nominal . + declines for t1o consecutive @uarters. b. nominal . + declines for four consecutive @uarters. c. real . + declines for t1o consecutive @uarters. d. real . + declines for four consecutive @uarters. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: * NA': Analytic ')+: !ecession 3$.
!ecessions are not associated 1ith 1hich of the follo1ingC a. increased ban/ruptcies b. falling profits c. falling incomes d. falling unemployment IF: 1 !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: efinitional
ANS: NA': Analytic ')+: !ecession 30.
A recession is al1ays associated 1ith a. the end of a 1ar. b. slo1ly gro1ing real . +. c. rising inflation. d. declining real . +. IF: # !"F: #$%0 ()*: 'he study of economics and definitions of economics -S*: Interpretive
ANS: NA': Analytic ')+: !ecession
Sec#2 $ Measuring a Nation's Income $ Is +,% a +oo( Measure o* Economic "e..$ 4eing5
MULTI%LE C !ICE 1. . + per person tells us the income and e,penditure of the a. richest person in the economy. b. poorest person in the economy. c. average person in the economy. d. entire economy.
ANS: * IF: 1 !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + per person -S*: efinitional #. . + is used as the basic measure of a society:s economic 1ell%being. A better measure of the economic 1ell% being of individuals in society is a. saving per person. b. . + per person. c. government e,penditures per person. d. investment per business firm.
ANS: ? IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + per person -S*: Interpretive
58
$.

-any things that society values, such as good health, high%@uality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of . +. It follo1s that a. . + is not a useful measure of society:s 1elfare. b. . + is still a useful measure of society:s 1elfare because providing these other attributes is the responsibility of government. c. . + is still a useful measure of society:s 1elfare because it measures a nation:s ability to purchase the inputs that can be used to help produce the things that contribute to 1elfare. d. . + is still the best measure of society:s 1elfare because these other values cannot actually be measured.
ANS: * IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: "conomic 1elfare -S*: Interpretive 0. . + does not reflect a. the value of leisure. b. the value of goods and services produced at home. c. the @uality of the environment. d. All of the above are correct. IF: # !"F: #$%2 ()*: 'he study of economics and definitions of economics -S*: Interpretive
. + is not a perfect measure of 1ell%being> for e,ample, a. . + incorporates a large number of non%mar/et goods and services that are of little value to society. b. . + places too much emphasis on the value of leisure. c. . + fails to account for the @uality of the environment. d. All of the above are correct.
ANS: * IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: "conomic 1elfare -S*: Interpretive 3. . + is not a perfect measure of 1ell%being> for e,ample, a. . + e,cludes the value of volunteer 1or/. b. . + does not address the distribution of income. c. . + does not address environmental @uality. d. All of the above are correct.
ANS: IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: "conomic 1elfare -S*: Interpretive 5. Suppose the government passes a la1 eliminating holidays and, as a result, the production of goods and services increases because people 1or/ more days per year Fand thus enjoy less leisure per yearG. ?ased on this scenario, 1hich of the follo1ing statements is correctC a. . + 1ould definitely increase, despite the fact that . + includes leisure. b. . + 1ould definitely increase because . + e,cludes leisure. c. . + could either increase or decrease because . + includes leisure. d. . + could either increase or decrease because . + e,cludes leisure. IF: # !"F: #$%2 ()*: 'he study of economics and definitions of economics -S*: Applicative
ANS: ? NA': Analytic ')+: . +

6.
6&
Suppose the government eliminates all environmental regulations and, as a result, the production of goods and services increases, but there is considerably more pollution. ?ased on this scenario, 1hich of the follo1ing statements is correctC a. . + 1ould definitely increase, despite the fact that . + includes environmental @uality. b. . + 1ould definitely decrease because . + includes environmental @uality. c. . + 1ould definitely increase because . + e,cludes environmental @uality. d. . + could either increase or decrease because . + e,cludes environmental @uality. IF: # !"F: #$%2 ()*: 'he study of economics and definitions of economics -S*: Applicative
Suppose that t1enty%five years ago a country had nominal . + of A1,&&&, a . + deflator of #&&, and a population of 1&&. 'oday it has nominal . + of A$,&&&, a . + deflator of 0&&, and population of 12&. =hat happened to the real . + per personC a. It more than doubled. b. It increased, but it less than doubled. c. It 1as unchanged. d. It decreased.
ANS: * IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + per person -S*: Applicative 1&. uring a presidential campaign, the incumbent argues that he should be reelected because nominal . + gre1 by 1# percent during his 0%year term in office. Iou /no1 that population gre1 by 0 percent over the period and that the . + deflator increased by 3 percent during the past 0 years. Iou should conclude that real . + per person a. gre1 by more than 1# percent. b. gre1, but by less than 1# percent. c. 1as unchanged. d. decreased.
ANS: ? IF: $ !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + per person -S*: Analytical 11. Suppose that over the last t1enty%five years a country:s nominal . + gre1 to three times its former si;e. In the meantime, population gre1 by 0& percent and prices rose by 1&& percent. =hat happened to real . + per personC a. It more than doubled. b. It increased, but it less than doubled. c. It 1as unchanged. d. It decreased.
ANS: ? IF: $ !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: !eal . + per person -S*: Analytical 1#. 'he information belo1 1as reported by the =orld ?an/. )n the basis of this information, 1hich list belo1 contains the correct ordering of . + per person from highest to lo1estC Nominal . + in #&&& A0,6&&,&&& million A#0&,&&& million A8,6&&,&&& million +opulation in #&&& 1#5 million 5.# million #6& million
*ountry Eapan S1it;erland <nited States a. b. c. d.
Eapan, S1it;erland, <nited States Eapan, <nited States, S1it;erland S1it;erland, <nited States, Eapan <nited States, Eapan, S1it;erland
61
ANS: ? IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + per person -S*: Applicative 1$. 'he information belo1 1as reported by the =orld ?an/. )n the basis of this information, 1hich list belo1 contains the correct ordering of . + per person from highest to lo1estC Nominal . + in #&&& A1&,0&& million A8,&&& million A5,#&& million +opulation in #&&& $&.1 million $$.5 million 1#.3 million
*ountry Kenya 'an;ania Oimbab1e a. b. c. d.
Kenya, 'an;ania, Oimbab1e 'an;ania, Kenya, Oimbab1e Oimbab1e, Kenya, 'an;ania Oimbab1e, 'an;ania, Kenya
ANS: * IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: . + per person -S*: Applicative 10. International data on . + and socioeconomic variables a. are inconclusive about the relationship bet1een . + and the economic 1ell%being of citi;ens. b. suggest that poor nations actually might enjoy a higher standard of living than do rich nations. c. leave no doubt that a nation:s . + is closely associated 1ith its citi;ens: standard of living. d. indicate that there are fe1 real differences in living standards around the 1orld, in spite of the large differences in . + bet1een nations.
ANS: * IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: "conomic 1elfare -S*: Interpretive 12. International studies of the relationship bet1een . + per person and @uality of life measures such as life e,pectancy and literacy rates sho1 that larger . + per person is associated 1ith a. longer life e,pectancy and a lo1er percentage of the population that is literate. b. longer life e,pectancy and a higher percentage of the population that is literate. c. very nearly the same life e,pectancy and a lo1er percentage of the population that is literate. d. very nearly the same life e,pectancy and a higher percentage of the population that is literate.
ANS: ? IF: # !"F: #$%2 NA': Analytic ()*: 'he study of economics and definitions of economics ')+: "conomic 1elfare -S*: Interpretive

Chapter 23

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Chapter 23

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Chapter 23 Measuring a Nation's Income

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

Sec## $ Measuring a Nation's Income

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

ANS: * NA': Analytic ')+: . +

Sec#& $ Measuring a Nation's Income $ The Econom''s Income an( E)pen(iture

ANS: * NA': Analytic ')+: . + #.

ANS: ? NA': Analytic ')+: . + $.

*hapter #$ 9-easuring a Nation:s Income

ANS: NA': Analytic ')+: . + 8.

*hapter #$ 9-easuring a Nation:s Income

Sec#2 $ Measuring a Nation's Income $ The Measurement o* +ross ,omestic %ro(uct

ANS: * NA': Analytic ')+: . + #.

ANS: * NA': Analytic ')+: . + $.

ANS: * NA': Analytic ')+: . + 0.

*hapter #$ 9-easuring a Nation:s Income

ANS: ? NA': Analytic ')+: . + 3.

ANS: A NA': Analytic ')+: . + 5.

ANS: ? NA': Analytic ')+: . + 6.

ANS: * NA': Analytic ')+: . + 8.

ANS: * NA': Analytic ')+: . +

*hapter #$ 9-easuring a Nation:s Income

ANS: A NA': Analytic ')+: . + 11.

ANS: NA': Analytic ')+: . + 1#.

ANS: NA': Analytic ')+: . + 1$.

ANS: ? NA': Analytic ')+: . + 10.

ANS: * NA': Analytic ')+: . +

*hapter #$ 9-easuring a Nation:s Income

ANS: NA': Analytic ')+: . + 13.

ANS: * NA': Analytic ')+: . + 15.

ANS: A NA': Analytic ')+: . + 16.

ANS: ? NA': Analytic ')+: . + 18.

ANS: A NA': Analytic ')+: . +

*hapter #$ 9-easuring a Nation:s Income

ANS: A NA': Analytic ')+: . + #1.

ANS: ? NA': Analytic ')+: . + ##.

ANS: A NA': Analytic ')+: . + #$.

ANS: * NA': Analytic ')+: . + #0.

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

*hapter #$ 9-easuring a Nation:s Income

ANS: NA': Analytic ')+: . + $5.

ANS: * NA': Analytic ')+: . + $6.

ANS: * NA': Analytic ')+: . + $8.

ANS: ? NA': Analytic ')+: . + 0&.

ANS: NA': Analytic ')+: . +

*hapter #$ 9-easuring a Nation:s Income

ANS: ? NA': Analytic ')+: . + 0#.

ANS: * NA': Analytic ')+: . + 0$.

ANS: ? NA': Analytic ')+: . + 00.

ANS: ? NA': Analytic ')+: . + 02.

ANS: * NA': Analytic ')+: . +

*hapter #$ 9-easuring a Nation:s Income

ANS: * NA': Analytic ')+: . + 05.

ANS: A NA': Analytic ')+: . + 06.

ANS: NA': Analytic ')+: . + 08.