Chapter 3 Quiz

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1 of 30
Which of the following is a flow variable? 
 A. the value of the house in which you live
 B. the balance in your savings account
 C. your monthly consumption of hamburgers
 D. the number of hamburgers in your refrigerator at the beginning of the month

1 out of 1
Correct. The answer is C. As explained in Section 2-1, a flow is a quantity measured per unit time and a stock is a quantity measured at a given point in time. 

2 of 30
Which of the following is not a stock variable? 
 A. government debt
 B. the labor force
 C. the amount of money held by the public
 D. inventory investment

0 out of 1
Incorrect. The correct answer is D. Inventory investment is a quantity measured per unit time, so it is a flow variable. See Section 2-1. 

3 of 30
Gross domestic product (GDP) is 
 A. a stock.
 B. a flow.
 C. both a stock and a flow.
 D. neither a stock nor a flow.

0 out of 1
Incorrect. The correct answer is B. GDP is a quantity measured per unit time, so it is a flow. See Section 2-1. 

4 of 30
GDP measures 
 A. expenditure on all final goods and services.
 B. total income of everyone in the economy.
 C. total value added by all firms in the economy.
 D. all of the above.

0 out of 1
Incorrect. The correct answer is D. See Section 2-1 for a discussion of what GDP measures. 

5 of 30
Suppose that a farmer grows wheat and sells it to a baker for $1, the baker makes bread and sells it to a store for $2, and the store sells it to the customer for $3. This transaction increases GDP by   A. $1.

 B. $2.
 C. $3.
 D. $6.

1 out of 1
Correct. The answer is C. As explained in Section 2-1, GDP includes only the value of the final goods and services. Therefore, this transaction increases GDP by $3. 

6 of 30
Which of the following is not included in GDP? 
 A. the salary paid to a federal judge
 B. the value of housing services enjoyed by homeowners
 C. the value of automobile services enjoyed by car owners
 D. the value added by a shipping company that transports goods from the factory to retail stores

1 out of 1
Correct. The answer is C. In principle, GDP should include the imputed rent on automobiles, but in practice it does not. See Section 2-1. 

7 of 30
In which case is total expenditure in an economy not equal to total income?   A. If total saving is larger than total investment.
 B. If net exports are not zero.
 C. If inventory investment is negative.
 D. None of the above—they are always equal.

0 out of 1
Incorrect. The correct answer is D. As explained in Section 2-1, total expenditure in an economy always equals total income. 

8 of 30
All other things equal, GDP will rise if 
 A. imports rise.
 B. exports fall.
 C. durable goods consumption rises.
 D. military spending falls.

0 out of 1
Incorrect. The correct answer is C. A rise in imports, a fall in exports, or a fall in military spending will decrease GDP. A rise in durable goods consumption will increase GDP. See Section 2-1. 

9 of 30
Which of the following statements describes the difference between real and nominal GDP?   A. Real GDP includes only goods; nominal GDP includes goods and services.  B. Real GDP is measured using constant base-year prices; nominal GDP is measured using current prices.  C. Real GDP is equal to nominal GDP less the depreciation of the capital stock.  D. Real GDP is equal to nominal GDP multiplied by the CPI.

1 out of 1
Correct. The answer is B. For a discussion of the differences between real and nominal GDP, see Section 2-1. 

10 of 30
If production remains the same and all prices double, then real GDP   A. and nominal GDP are both constant.
 B. is constant and nominal GDP is reduced by half.
 C. is constant and nominal GDP doubles.
 D. doubles and nominal GDP is constant.

1 out of 1
Correct. The answer is C. Real GDP is measured in constant prices, so it is unaffected by a price increase. Nominal GDP is measured in current prices. If prices...
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