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EC 601 Fall 2011 Dr. Esin Cakan REVIEW QUESTIONS FOR CHP 19 GDP EC 133-05, Fall 08 QUESTIONS FOR CHP 10-12, SAMPLE EXAM I

10/21/2011

1) Gross domestic product serves as a measure of two things: 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 expenditure on the nation's output of goods and services. c. the value of the nation's output of goods and services for domestic citizens and the value of the nation's output of goods and services for the rest of the world. d. the nation's saving and the nation's investment. ANS: B PTS: 1 DIF: 1 REF: 23-1 2) GDP is defined as a. the market value of all goods and services produced within a country in a given period of time. b. the market value of all goods and services produced by the citizens of a country, regardless of where they are living in a given period of time. c. the market value of all final goods and services produced within a country in a given period of time. d. the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. ANS: C PTS: 1 DIF: 2 REF: 23-2 3) Which of the following transactions adds to U.S. GDP for 2006? a. In 2006, Ashley sells a car that she bought in 2002 to William for $5,000. b. An American management consultant works in Mexico during the summer of 2006 and earns the equivalent of $30,000 during that time. c. When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent. John and Jennifer got married in 2006 and they bought a house that, according to reliable estimates, could be rented for $1,600 per month. d. None of the above transactions adds to GDP for 2006. ANS: C PTS: 1 DIF: 3 REF: 23-2 4) Darla, a Canadian citizen, works only in the United States. The value that her labor contributes to U.S. output is a. included in both U.S. GDP and U.S. GNP. b. included in U.S. GDP, but it is not included in U.S. GNP. c. included in U.S. GNP, but it is not included in U.S. GDP. d. included in neither U.S. GDP nor U.S. GNP. ANS: B PTS: 1 DIF: 2 REF: 23-2 5) U.S. GDP and U.S. GNP are related as follows: a. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad. b. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens abroad. c. GNP = GDP + Value of exported goods - Value of imported goods. d. GNP = GDP - Value of exported goods + Value of imported goods. ANS: A PTS: 1 DIF: 2 REF: 23-2 6) Transfer payments are a. included in GDP because they represent income to individuals. b. included in GDP because the income eventually will be spent on consumption. c. not included in GDP because they are not payments for currently produced goods or services. d. not included in GDP because taxes will have to be raised to pay for them. ANS: C PTS: 1 DIF: 1 REF: 23-3 7) In the equation Y = C + I + G + NX, a. Y represents the economy’s total expenditure. b. C represents household expenditures on services and durable goods. c. all of the variables are always positive numbers. d. All of the above are correct. ANS: A PTS: 1 DIF: 2 REF: 23-3

8) Table 23-3
Prices and Quantities Quantity of Sandwiches 100 120 150

Year 2006 2007 2008

Price of Sandwiches $4.00 $5.00 $6.00

Price of Magazines $2.00 $2.50 $3.50

Quantity of Magazines 180 200 200

Refer to Table 23-3. Nominal GDP for 2007 is a. $900. b. $1,100. c. $1,250. d. $1,350. ANS: B PTS: 1 DIF: 1

REF: 23-4

9) Refer to Table 23-3. Using 2006 as the base year, for 2007, a. real GDP is $880 and the GDP deflator is 80. b. real GDP is $880 and the GDP deflator is 125. c. real GDP is $950 and the GDP deflator is 95. d. real GDP is $950 and the GDP deflator is 116. ANS: B PTS: 1 DIF: 2 REF: 23-4 10) Refer to Table 23-3. Using the GDP deflator to measure the average level of prices and using 2006 as the base year,...
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