Exercise

Measuring Y

1.Macroeconomists study
a. decisions of households and firms.
b. the interaction of households and firms.
c. economy-wide phenomena.
d. regulations on firms and unions.

2.Which of the following questions is more likely to be studied by a microeconomist than a
macroeconomist?
a. Why do prices in general rise by more in some countries than in others?
b. Why do wages differ across industries?
c. Why do production and income increase in some periods and not in others?
d. How rapidly is GDP currently increasing?

3.The basic tools of supply and demand are

a. useful only in the analysis of economic behavior in individual markets.
b. useful in analyzing the overall economy, but not in analyzing individual markets.
c. central to microeconomic analysis, but seldom used in macroeconomic analysis.
d. central to macroeconomic analysis as well as to microeconomic analysis.

4.Which of the following statements about GDP is correct?
a. GDP measures two things at once: the total income of everyone in the economy and the total
expenditure on the economys output of goods and services.
b. Money continuously flows from households to firms and then back to households, and GDP
measures this flow of money.
c. GDP is generally regarded as the best single measure of a societys economic well-being.
d. All of the above are correct.

5.If a nations GDP rises, then it must be the case that the nations
a. income and expenditure both rise.
b. income and saving both rise.
c. income rises, but expenditure may rise or fall.
d. saving rises, but income may rise or fall.

6.When a firm sells a good or a service, the sale contributes to the nations income
a. only if the buyer of the good or service is a household.
b. only if the buyer of the good or service is a household or another firm.
c. whether the buyer of the good or a service is a household, another firm, or the government.
d. We have to know whether the item being sold is a good or a service in order to answer the
question.

7.Suppose an apartment complex converts to a condominium, so that the former renters are now
owners of their housing units.
a. The rent was included in GDP; the purchases of the condominiums are not included in GDP.
b. The rent was included in GDP, and so are the purchases of the condominiums.
c. The rent was not included in GDP; the purchases of the condominiums are included in GDP.
d. The rent was not included in GDP, and neither are the purchases of the condominiums.

8.Which of the following transactions adds to U.S. GDP for 2006?

a. In 2006, Marvin Windows manufactures 20 windows that will eventually be installed in an
office building in Minneapolis. The windows remain in Marvins inventory at the end of
2006.
b. An Irish marketing consultant works in Boston during the summer of 2006 and earns
$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. All of the above transactions add to GDP for 2006.

9.If Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself,
then GDP
a. necessarily rises.
b. necessarily falls.
c. will be unaffected because the same service is produced in either case.
d. will be unaffected because car maintenance is not included in GDP.

10.The total sales of all firms in the economy for a year
a. equals GDP for the year.
b. is larger than GDP for the year.
c. is smaller than GDP for the year.
d. equals GNP for the year.

11.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.

12.Which of the following examples of production of goods and services would count as part of U.S.
GDP?
a. Samantha, a Canadian citizen, grows sweet corn in Minnesota and sells it to a grocery store
in Canada.
b. Ian, an American citizen, grows peaches for his family in the back yard of their Atlanta
home.
c. Brian, an American citizen, grows marijuana in his Seattle home and sells it to his friends
and neighbors.
d. None of the above examples of production would count as part of U.S. GDP.

13.How is Net National Product (NNP) calculated?
a. Saving is subtracted from the total income of a nations citizens.
b. Saving is subtracted from the total income of a nations permanent residents.
c. Depreciation losses are subtracted from the total income of a nations citizens.
d. Depreciation losses are subtracted from the total income of a nations permanent residents.

Table 1. The data pertain to the nation of Simplia for the year 2006.
GDP
Income Earned by Citizens Abroad
Income Foreigners Earn here
Losses from Depreciation
Indirect Business Taxes
Business Subsidies
Statistical Discrepancy

$110
$5
$ 15
$4
$6
$2
$0

Retained Earnings
Corporate Income Taxes
Social Insurance Contributions
Interest Paid to Households by Government
Transfer Payments to Households from Government
Personal Taxes
Non-tax payments to Government

$5
$6
$ 10
$5
$ 15
$ 30
$5

14.Refer to Table 1. GNP for Simplia is
a. $96.
b. $100.
c. $105.
d. $110.

15.Refer to Table 1. The market value of all final goods and services produced within Simplia in 2006
is
a. $96.
b. $100.
c. $105.
d. $110.

16.Refer to Table 1. NNP for this economy is
a. $100.
b. $96.
c. $90.
d. $88.

17.Refer to Table 1. National income for this economy is
a. $96.
b. $92.
c. $90.
d. $88.

18.Refer to Table 1. Personal income for this economy is
a. $91.
b. $81
c. $80.
d. $51.

19.Refer to Table 1. Disposable personal income for this economy is
a. $61
b. $56.
c. $47.
d. $41.

20.Steph buys a designer dress produced by an American-owned fashion shop in France. As a result,
U.S. consumption increases, U.S. net exports
a. decrease, U.S. GDP is unaffected, and U.S. GNP increases.
b. decrease, U.S. GDP increases, and U.S. GNP is unaffected.
c. decrease, U.S. GNP increases, and French GDP is unaffected.
d. are unaffected, U.S. GDP is unaffected, and French GDP increases.

21.A German citizen buys an automobile produced in the United States by a Japanese company. As a
result,
a. U.S. net exports increase, U.S. GNP and GDP are unaffected, Japanese GNP increases,
German net exports decrease, and German GNP and GDP are unaffected.
b. U.S. net exports, GNP, and GDP increase, Japanese GDP increases, German net exports
decrease, and German GDP is unaffected.
c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease,
and German GDP and GNP are unaffected.
d. U.S. net exports, GNP, and GDP are unaffected, Japanese GNP increases, German net
exports decrease, and German GDP and GNP fall.
22.If net exports is a negative number for a particular year, then
a. the value of firms inventories declined over the course of the year.
b. consumption exceeded the sum of investment and government purchases during the year.
c. the value of goods sold to foreigners exceeded the value of foreign goods purchased during
the year.
d. the value of foreign goods purchased exceeded the value of goods sold to foreigners during
the year.
23.A country reported nominal GDP of $200 billion in 2006 and $180 billion in 2005; it reported a
GDP deflator of 125 in 2006 and 105 in 2005. Between 2005 and 2006,
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.
24.Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 200,
and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and
population of 150. What happened to the real GDP per person?
a. It more than doubled.
b. It increased, but it less than doubled.
c. It was unchanged.
d. It decreased.