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ECON 2101 Test 2 Ch 8-Multiple Choice Questions

During a business cycle expansion, total production _____ and total employment _______
A. Decreases; increases
B. Decreases; decreases
C. Increases; decreases
D. Increases; Increases
D. Increases; increases
Which of the following headlines would be more closely related to what macroeconomics study than what micro-economist’s study?
A. The United auto workers sign a contract raising wages and benefits 7% over the next 3 years
B. Avocado prices rise due to a late frost in CA.
C. Real GDP grows by 2.3% in the second quarter
D. Airlines raise ticket prices in response to rising fuel costs.
C. Real GDP grows by 2.3% in the second quarter
Gross Domestic Product is calculated by summing up
A. the total quantity of goods and services in the economy
B. The total quantity of goods and services produced in the economy during a period of time
C. The total market value of final goods and services produced in the economy during a period of time
D. The total market value of goods and services in the economy
C. The total market value of final goods and services produced in the economy during a period of time
Which of the following goods is directly counted in GDP?
A. the plastic bags that Subway purchases to wrap its sandwiches
B. the lettuce that Subway purchases for its sandwiches
C. a 12 inch Subway sandwich purchased by a student
D. the bread that Subway purchases for its sandwiches
C. a 12 inch Subway sandwich purchased by a student
Which of the following transactions represents the purchase of a final good?
A. Apple computer buys computer processors from Intel
B. Delta buys a new European-made jetliner
C. Your father buys a new John Deere riding lawn mower
D. The purchase of coffee beans by Starbucks
C. Your father buys a new John Deere riding lawn mower
Which of the following is not directly counted in GDP?
A. Government Purchases
B. Investment expenditures
C. Consumer goods
D. Intermediate goods
D. Intermediate goods
In the circular flow model, the value of total production for an economy ____ the value of total expenditure final goods and services
A. Equals
B. May be greater than or less than
C. is greater than
D. is less than
A. Equals
The nominal GDP of the US in 2012 was approximately 16.2 trillion. This means that
A. total spending on final goods and services in 2012 was around 16.2 trillion
B. total income in 2012 was around 16.2 trillion
C. the value of final output in 2012 was around 16.2 trillion
D. All of the above are true
D. All the the above are true
Which of the following is not an example of a transfer payment?
A. Social security payments to retirees
B. unemployment insurance payments
C. social security payments to disabled persons
D. health insurance payments to an army private
D. health insurance payments to an army private
The factors of production include
A. transfers
B. capital
C. wages
D. investment
B. capital
Investment, as defined by economists, would include the purchase of a
A. share of stock in ExxonMobil
B. corporate bond
C. computer by an accounting firm
D. government bond
C. computer by an accounting firm
Investment, as defined by economists, would *not* include which of the following? Ford
A. adds 1,000 new cars to inventories
B. buys U.S. government bonds
C. buys a new robotic machine (from a plant in Ohio) to assemble cars
D. builds another assembly plant in the United States
B. buys U.S. government bonds
The purchase by a Chinese household of a CD produced in the United States is included in US
A. investment expenditures
B. government purchases
C. net exports
D. consumption expenditures
C. net exports
Which of the following transactions would be included in the official calculation of GDP?
A. a student buys a used textbook at the bookstore
B. Firestone sells $2 million worth of tires to General Motors
C. You wash and wax your fathers car as a favor to him
D. you buy a new iPod
E. you illegally download music off the internet to put on your new iPod
D. you buy a new iPod
A transfer payment is a payment by the government to an individual
A. for a consumption goods
B. for a service
C. for which the government does not receive a good or service in return
D. for a debt owed
E. for an investment good
C. for which the government does not receive a good or service in return
An example of a transfer payment is
A. a purchase of a new bridge in Alaska
B. a teachers paycheck
C. a paycheck for a member of the National Guard
D. a welfare payment
D. a welfare payment
In the circular flow diagram, ____supply the factors of production, and ___ goods and services
A. households; sell
B. firms; sell
C. firms; buy
D. households; buy
D. households; buy
Which of the following equations correctly measures GDP in an economy?
A. GDP= C+I+G+X
B. GDP=C+ net I + G + NX
C. GDP= C+G+I – taxes
D. GDP= C+I+G+NX
D. GDP= C+I+G+NX
Caroline is an artist. She purchases canvas, paints, brushes and accessories for $75. She sells one of her original paintings to an art gallery for $1,500, even though an art lover would pay $4,500 for that painting. How much value does Caroline add?
A. $75
B. $1,425
C. $1,500
D. $4,425
B. $1,425
GDP understates the total production of final goods and services because of the omission of
A. the underground economy
B. intermediate goods
C. inflation
D. exports
A. the underground economy
Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry and have 8 children. Bob stops working for Mary in order to care for the children. What will be the effect on GDP?
A. GDP will decrease
B. GDP will not change
C. GDP will increase
D. GDP may increase or may decrease depending on inflation
A. GDP will decrease
Legalizing all forms of illegal activities
A. increases GDP and increases the size of the underground economy
B. reduces GDP and the size of the underground economy
C. reduces GDP and increases the size of the underground economy
D. increases GDP and reduces the size of the underground economy
D. increases GDP and reduces the size of the underground economy
The underground economy can be described as
A. economic production that includes mining
B. production of infrastructure that spurs growth in the rest of the economy
C. production of intermediate goods and services
D. economic activity that is hidden from the government to avoid taxes or because the activity is illegal
D. economic activity that is hidden from the government to avoid taxes or because the activity is illegal
Nominal GDP is GDP in a given year
A. adjusted for inflation
B. adjusted for anticipated inflation
C. valued in the prices of that year
D. valued in the prices of the base year
C. valued in the prices of that year
Real GDP is GDP in a given year
A. adjusted for anticipated inflation
B. valued in the prices of that year
C. Valued in the prices of the base year
D. adjusted for unanticipated inflation
C. Valued in the prices of the base year
If the quantity of goods and services produced in the economy decreases
A. real GDP would certainly increase
B. it may be possible for real GDP to increase
C. nominal GDP would certainly increase
D. it may be possible for nominal GDP to increase
D. it may be possible for nominal GDP to increase
Which of the following could cause nominal GDP to decrease, but real GDP to increase?
A. the prce level rises and the quantity of final goods and services produced rises
B. the price level rises and the quantity of final goods and services produced falls
C. the price level falls and the quantity of final goods and services produced falls
D. the price level falls and the quantity of final goods and services produced rises
D. the price level falls and the quantity of final goods and services produced rises
Real GDP will increase
A. if either the price level rises of the quantity of final goods and services produced rises
B. only if the price level rises
C. only if the price level falls
D. Only if the quantity of final goods and services produced rises
D. Only if the quantity of final goods and services produced rises
If real GDP increases we know for sure that
A. prices have remained constant
B. output has risen
C. prices have risen buy output has remained constant
D. prices have risen
B. output has risen
If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?
A. 270%
B. 50%
C. 5%
D. 2.7%
D. 2.7%

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