Test bank For Macroeconomics 12th Edition by

Rudiger Dornbusch Dr

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Sample Questions

CHAPTER 2

NATIONAL INCOME ACCOUNTING

Difficulty: Easy

1. In calculating this year’s GDP, national income accountants

2. A) include any increase in stock values
3. B) include an estimate for income from illegal activities
4. C) exclude Social Security payments to retirees
5. D) exclude the value of any repairs made on existing property
 6. E) exclude the value of new pollution control equipment that is being
installed

Ans: C

Difficulty: Medium

2. Assume you built a new house, bought a used car, and bought some
government bonds. Which of the following is true?
3. A) consumption and government purchases went up since you bought a
used car and government bonds
4. B) consumption and investment went up since you bought a used car
and government bonds
5. C) investment and government purchases went up since you built a new
house and bought government bonds
6. D) investment went up since you built a new house
7. E) consumption went up since you built a new house

Ans: D

Difficulty: Medium

3. Which of the following is FALSE?

4. S. GDP underestimates actual economic activity because it does not
include underground activity
5. an increase in the ratio of currency holdings to bank deposits may be
seen as evidence for an increase in underground activity
6. if the underground economy grows rapidly, then the rate of economic
growth will be underestimated
7. as the underground economy grows, consumption spending decreases
8. underground activity includes income from services produced at home
but not reported, such as typing someone else’s term paper

Ans: D
Difficulty: Easy

4. Which of the following statements is true?

5. A) NDP is greater than GDP if prices are falling
6. B) NDP is greater than GDP if prices are rising
7. C) NDP can be greater than GDP but only if the economy is growing
8. D) NDP cannot be greater than GDP
9. E) NDP must always be greater than GDP

Ans: D

Difficulty: Easy

5. Increases in unwanted business inventories are counted as

6. A) a decrease in the capital stock
7. B) an increase in consumption
8. C) an increase in investment
9. D) an increase in depreciation
10. E) none of the above

Ans: C

Difficulty: Easy

6. The difference between gross domestic investment and net domestic

investment is equal to
7. A) unwanted inventory changes
8. B) the difference between NDP and national income
9. C) the addition to the capital stock
 10. D) the difference between GDP and NDP
11. E) none of the above

Ans: D

Difficulty: Medium

7. Assume nominal GDP increased by 4.2% in the U.S. but by only 3.4%
in Germany. We can definitely conclude that
8. A) the standard of living of the people in the U.S. went up more than the
standard of living of the people in Germany
9. B) real economic growth in the U.S. was higher than in Germany
10. C) inflation in the U.S. was 0.8% higher than in Germany
11. D) productivity growth in the U.S. was higher than in Germany
12. E) none of the above

Ans: E

Difficulty: Easy

8. Assume you deplete your savings to buy a new sofa and some
government bonds and then take a vacation in a foreign country. Which
of the following is true?
9. A) consumption will increase
10. B) net exports will increase
11. C) government purchases will increase
12. D) investment will increase
13. E) all of the above

Ans: A
Difficulty: Easy

9. If gross investment were zero, which of the following would be true?

10. A) the existing capital stock would stay the same
11. B) net investment would be positive
12. C) net investment would be negative
13. D) depreciation would be zero
14. E) depreciation would be negative

Ans: C

Difficulty: Easy

10. Depreciation is
11. A) the difference between gross investment and net investment
12. B) the difference between GDP and NDP
13. C) the difference between GNP and NNP
14. D) the consumption of fixed capital
15. E) all of the above

Ans: D

Difficulty: Medium

11. If we counted the value of autoworkers’ salaries, wheels, tires,

steel, body parts, and final car sales in calculating GDP, then we would
be
12. A) understating GDP by overlooking car dealers’ profits
13. B) ignoring the contribution of capital to output
14. C) overstating GDP through double counting
15. D) using the value-added technique for calculating GDP
 16. E) calculating GDP correctly only if we excluded any imported
cars

Ans: C

Difficulty: Medium

12. The difference between gross investment and net investment is

13. A) the same as the difference between GDP and disposable
income
14. B) the same as the difference between disposable income and
consumption
15. C) the same as the difference between NDP and national income
16. D) the same as the difference between net and gross exports
17. E) equal to capital consumption allowances

Ans: E

Difficulty: Easy

13. In the United States, annual per-capita GDP in 2012 was around
14. A) $15,700
15. B) $38,400
16. C) $49,800
17. D) $54,200
18. E) $58,600

Ans: C

Difficulty: Easy
 14. As defined in our text, private domestic investment (I) does NOT
include
15. A) new residential construction except on farms
16. B) movable machinery such as trucks or tractors
17. C) inventory accumulation, unless it was planned or intended
18. D) investment in labor productivity through education and training
19. E) new additions to existing factories

Ans: D

Difficulty: Medium

15. Assume a U.S. dealer bought 100 TVs from South Korea for $250
each in 2012. He subsequently sold 80 of them in 2012 for $450 each,
and the rest in 2013 for $400 each. By how much was the U.S. GDP
affected in 2012?
16. A) $45,000
17. B) $36,000
18. C) $19,000
19. D) $16,000
20. E) $11,000

Ans: D

Difficulty: Easy

16. In 1994, U.S. GDP was $6,931, GNP was $6,922, NNP was
$6,104, and national income was $5,495 (all numbers are in billions of
dollars). We can conclude that
17. A) depreciation was $818 billion
18. B) depreciation was $1,436 billion
19. C) the addition to the capital stock was $1,436 billion
20. D) the addition to the capital stock was $1,427 billion
21. E) indirect business taxes were $9 billion
Ans: A

Difficulty: Medium

17. For a simple economy with no depreciation, no government, and

no foreign sector, which of the following identities would be correct?
18. A) Y ≡ C
19. B) C – I ≡ S
20. C) Y – C ≡ S
21. D) Y – C ≡ S + I
22. E) Y ≡ C + S – I

Ans: C

Difficulty: Medium

18. Which of the following identities is FALSE?

19. A) Y º C + I + G + NX
20. B) YD º Y – TA + TR
21. C) BS º TA – TR – G
22. D) I – S º (G – TA + TR) + NX
23. E) S + TA – TR º I + G + NX

Ans: D

Difficulty: Easy

19. If private domestic saving in an economy increases, which is the

most likely to occur?
20. A) a decrease in the budget deficit
 21. B) a decrease in net exports
22. C) an increase in consumption
23. D) an increase in imports
24. E) an increase in private domestic investment

Ans: E

Difficulty: Medium

20. Assume the budget deficit increases. Which of the following can
happen?
21. A) private domestic saving can increase
22. B) private domestic investment can decrease
23. C) imports can increase
24. D) exports can decrease
25. E) all of the above

Ans: E

Difficulty: Medium

21. If the government increases taxes, which of the following is

LEAST likely to occur?
22. A) a decrease in private domestic saving
23. B) a decrease in consumption
24. C) an increase in private domestic investment
25. D) a decrease in net exports
26. E) a decrease in national income

Ans: D
Difficulty: Medium

22. Assume that GDP = 4,800, consumption = 3,400, private

domestic savings = 400, government purchases = 1,200, and net
exports = -120. Which of the following is true?
23. A) disposable income is 3,800
24. B) private domestic investment is 320
25. C) the budget deficit is 200
26. D) all of the above
27. E) only A) and C)

Ans: D

Difficulty: Medium

23. If private domestic saving is 960, private domestic investment is

780, and the government spends 300 more than it receives in tax
revenues, then it follows that
24. A) the trade deficit is 120
25. B) the trade deficit is 300
26. C) the trade deficit is 420
27. D) the trade surplus is 120
28. E) the trade surplus is 180

Ans: A

Difficulty: Medium

24. Assume that GDP = 8,100, consumption = 5,400, gross private

domestic investment = 1,200, government purchases = 1,600. Which of
the following is true?
25. A) imports exceed exports by 100
 26. B) exports exceed imports by 100
27. C) depreciation is 100
28. D) the trade surplus is 100
29. E) both B) and D)

Ans: A

Difficulty: Medium

25. Assume exports = 300, imports = 400, tax revenues = 1,100,

government purchases = 1,400, private domestic saving = 900. Then
the level of private domestic investment is
26. A) 600
27. B) 700
28. C) 900
29. D) 1,100
30. E) 1,300

Ans: B

Difficulty: Easy

26. If imports increase by $15 billion, which of the following has to

happen for GDP to rise?
27. A) consumption has to increase by more than $15 billion
28. B) government purchases have to increase by more than $15
billion
29. C) private domestic investment has to increase by more than $15
billion
30. D) private domestic saving has to increase by more than $15
billion
31. E) either A), B), or C) would be sufficient to increase GDP

Ans: E
Difficulty: Easy

27. As a percentage of GNP, the U.S. federal debt

28. A) sharply increased in the 1980s, decreased in the 1990s, and
increased again after 2000
29. B) decreased steadily from World War II to the year 2000
30. C) increased steadily from 1960 to 2013
31. D) was never lower than 20 percent
32. E) never exceeded 100 percent

Ans: A

Difficulty: Medium

28. If private domestic saving exceeds private domestic investment by

$220 billion and government spending exceeds tax revenue by $340
billion, then
29. A) the trade deficit is $560 billion
30. B) the trade surplus is $560 billion
31. C) the trade deficit is $120 billion
32. D) the trade surplus is $120 billion
33. E) the trade deficit is $340 billion

Ans: C

Difficulty: Medium
 29. If national income is 5,200, disposable income is 4,400,
consumption is 4,100, the trade deficit is 110, and the budget deficit is
150, what is the level of private domestic investment?
30. A) 1,060
31. B) 540
32. C) 300
33. D) 260
34. E) 40

Ans: D

Difficulty: Difficult

30. Assume government purchases = $1,500, the budget deficit =

$120, consumption = $4,800, private domestic saving = $1,220, the
trade deficit = $90, and transfer payments = $0. Which of the following
is true?
31. A) private domestic investment is $1,190
32. B) national income is $7,400
33. C) disposable income is $6,020
34. D) all of the above
35. E) only A) and C)

Ans: D

Difficulty: Medium

31. If the U.S. budget deficit increased substantially while private

domestic saving and private domestic investment remained roughly the
same, then
32. A) the U.S. imported more than it exported
33. B) the U.S. exported more than it imported
34. C) the U.S. must have experienced a major recession
35. D) there must have been a major drop in U.S. interest rates
 36. E) all of the above

Ans: A

Difficulty: Difficult

32. Assume the budget deficit decreased by $15 billion, private

domestic saving decreased by $20 billion, exports increased by $10
billion, and imports increased by $15 billion. By how much did private
domestic investment change?
33. A) private domestic investment decreased by $10 billion
34. B) private domestic investment increased by $10 billion
35. C) private domestic investment did not change at all
36. D) private domestic investment decreased by $20 billion
37. E) the change in private domestic investment cannot be
determined from this information

Ans: C

Difficulty: Medium

33. The budget deficits in the early 1980s were largely financed
through
34. A) an increase in private domestic saving
35. B) an increase in private domestic investment
36. C) an increase in net exports
37. D) a decrease in net exports
38. E) none of the above

Ans: D