Part 9.

Macroeconomics Measures of Performance (1h 10mins, MC: 35 mins FRQ: 35 mins)

1. Which of the following transactions would be counted in GDP?

(A) The wage you receive from babysitting your neighbor’s kids.
(B) The sale of illegal drugs.
(C) The sale of cucumbers to a pickle manufacturer.
(D) The sale of a pound of tomatoes at a supermarket.
(E) The resale of a sweater you received from your great aunt at Christmas that you never wore on
eBay.

2. GDP is $10 million, consumer spending is $6 million, government spending is $3 million,

exports are $2 million, and imports are $3 million.
How much is spent for investments?

(A) $0 million
(B) $1 million
(C) $2 million
(D) $3 million
(E) $4 million

3. If Real GDP = $200 billion and the price index = 200, Nominal GDP is

(A) $4 billion.
(B) $400 billion.
(C) $200 billion.
(D) $2 billion.
(E) impossible to determine since the base year is not given.

For questions 4 to 5 use the information below for a small town.

Total Population: 2000
Total Employed Adults: 950
Total Unemployed Adults: 50

4. What is the size of the labor force?

(A) 2000
(B) 950
(C) 900
(D) 1000
(E) 1950

5. What is the unemployment rate?

(A) 5 percent
(B) 2.5 percent
(C) 5.5 percent
(D) 7 percent
(E) Unknown, as we do not know the number of discouraged workers.

6. You are working at a supermarket bagging groceries but you are unhappy about your wage so
you quit and begin looking for a new job at a competing grocery store. What type of unemployment
is this?

(A) Cyclical
(B) Structural
(C) Seasonal
(D) Frictional
(E) Discouraged

7. An increase in the Consumer Price Index is commonly referred to as

(A) economic growth.

(B) inflation.
(C) unemployment.
(D) discouraged workers.
(E) deflation.

8. Which of the following is characteristic of a centrally planned economic system?

(A) Resources are allocated based on relative prices.

(B) The circular flow of goods and services minimizes the role of the federal government.
(C) Private ownership of resources is fundamental to economic growth.
(D)Government planners decide how best to produce goods and services.
(E) Efficiency is superior to the market economic system.

9. Which of the following are harmed by unexpectedly high rates of inflation?

I. Borrowers repaying a long-term loan at a fixed interest rate.
II. Savers who have put their money in long term assets that pay a fixed interest rate.
III. Workers who have negotiated cost-of-living raises into their contracts.
IV. Persons living on fixed incomes.

(A) I and III only

(B) II and III only
(C) II and IV only
(D) I, II, and IV only
(E) II, III, and IV only

10. If your nominal income rises 4 percent and your real income falls 1 percent, by how much did
the price level change?

(A) 5 percent decrease

(B) 1⁄4 percent increase
(C) 3 percent increase
(D) 3 percent decrease
(E) 5 percent increase

11. Which of the following best measures changes in the price level of national product?

(A) The consumer price index.

(B) The real interest rate.
(C) The unemployment rate.
(D) The producer price index.
(E) The GDP deflator.

12. What does the presence of discouraged workers do to the measurement of the unemployment
rate?

(A) Discouraged workers are counted as “out of the labor force,” thus understating the
unemployment rate, making the economy look stronger than it is.
(B) Discouraged workers are counted as “out of the labor force,” thus overstating the
unemployment rate, making the economy look weaker than it is.
(C) Discouraged workers are not surveyed so there is no impact on the unemployment rate.
(D)Discouraged workers are counted as “unemployed,” thus understating the unemployment rate,
making the economy look stronger than it is.
(E) Discouraged workers are counted as “unemployed,” thus overstating the unemployment rate,
making the economy look weaker than it is.

13. Which of the following is true of the complete circular flow model of an open economy?

(A) All goods and services flow through the government in exchange for resource payments.
(B) There is no role for the foreign sector.
(C) Households supply resources to producers in exchange for goods and services.
(D) Producers provide goods and services to households in exchange for the costs of production.
(E) The government collects taxes from firms and households in exchange for goods and services.

14. At the peak of a typical business cycle, which of the following is likely the greatest threat to the
macroeconomy?

(A) Unemployment
(B) Bankruptcy
(C) Declining labor productivity
(D) Falling real household income
(E) Inflation

15. When a nation is operating at the natural rate of employment,

(A) there is no cyclical unemployment.

(B) the inflation rate is zero.
(C) there is no structural unemployment.
(D) the nation is experiencing a recession.
(E) the unemployment rate is zero.

16. GDP is the: 

A. national income minus all non-income charges against output.

B. monetary value of all final goods and services produced within the borders of a nation in a
particular year.
C. monetary value of all economic resources used in producing a year's output.
D. monetary value of all goods and services, final and intermediate, produced in a specific year.

17. Suppose Smith pays $100 to Jones. 

A. We can say with certainty that the GDP has increased by $100.
B. We can say with certainty that the GDP has increased, but we cannot determine the amount.
C. We can say with certainty that the nominal GDP has increased, but we can't say whether real
GDP has increased or decreased.
D. We need more information to determine whether GDP has changed.

18. Suppose the total monetary value of all final goods and services produced in a particular
country in 2008 is $500 billion and the total monetary value of final goods and services sold is $450
billion. We can conclude that: 

A. GDP in 2008 is $450 billion.

B. GDP in 2008 is $950 billion.
C. GDP in 2008 is $500 billion.
D. inventories in 2008 fell by $50 billion.

 19. National income accountants can avoid multiple counting by: 

A. including transfers in their calculations.
B. only counting final goods.
C. counting both intermediate and final goods.
D. only counting intermediate goods.
 
20. Gross domestic product (GDP) measures and reports output: 

A. as an index number.

B. in percentage terms.
C. in dollar amounts.
D. in quantities of physical units (for example, pounds, gallons, and bushels).

21. GDP is: 

A. the monetary value of all goods and services (final, intermediate, and non-market) produced in a
given year.
B. total resource income less taxes, saving, and spending on exports.
C. the economic value of all economic resources used in the production of a year's output.
D. the monetary value of all final goods and services produced within a nation in a specific year.

22. By summing the dollar value of all market transactions in the economy we would: 

A. be determining the market value of all resources used in the production process.
B. obtain a sum substantially larger than the GDP.
C. be determining value added for the economy.
D. be measuring GDP.

23. Final goods and services refer to: 

A. goods and services that are unsold and therefore added to inventories.
B. goods and services whose value has been adjusted for changes in the price level.
C. goods and services purchased by ultimate users, rather than for resale or further processing.
D. the excess of U.S. exports over U.S. imports.

24. If intermediate goods and services were included in GDP: 

A. the GDP would be overstated.

B. the GDP would then have to be deflated for changes in the price level.
C. nominal GDP would exceed real GDP.
D. the GDP would be understated.

25. Which of the following is a final good or service? 

A. a haircut
B. fertilizer purchased by a farm supplier
C. diesel fuel bought for a delivery truck
D. Chevrolet windows purchased by a General Motors assembly plant

26. Which of the following is an intermediate good? 

A. the purchase of gasoline for a ski trip to Colorado.
B. the purchase of baseball uniforms by a professional baseball team.
C. the purchase of a pizza by a college student.
D. the purchase of jogging shoes by a professor

27. Tom Atoe grows tomatoes for home consumption. This activity is: 

A. excluded from GDP in order to avoid double counting.

B. excluded from GDP because an intermediate good is involved.
C. productive but is excluded from GDP because no market transaction occurs.
D. included in GDP because it reflects production.

 28. GDP includes:
 
A. neither intermediate nor final goods.
B. both intermediate and final goods.
C. intermediate, but not final, goods.
D. final, but not intermediate, goods.

29. The value added of a firm is the market value of: 

A. a firm's output plus the value of the inputs bought from others.
B. a firm's output less the value of the inputs bought from others.
C. of the firm's output.
D. of the firm's inputs bought from others.

30. Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to
Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700.
Donita sells the dresses for $1200 to kids attending the prom. The total contribution to GDP of this
series of transactions is: 
A. $1200
B. $500
C. $2300
D. $1100

31. Which of the following transactions would be included in GDP? 

A. Mary buys a used book for $5 at a garage sale.
B. Nick buys $5000 worth of stock in Microsoft.
C. Olivia receives a tax refund of $500.
D. Peter buys a newly constructed house.

32. All of the following products would be included in the calculation of the US GDP except

A. Toyota cars produced in Kentucky.

B. Haricuts
C. Starbuck’s coffee produced and sold in China
D. A firm’s purchase of capital equipment produced in Arizonta.
E. Government spending on highways.

33. Which of the following is included in the calculation of US GDP?

A. A girl mowing her family’s yard

B. A student buying a used car
C. A neighbor paying a babysitter with homemade cookies
D. A senior citizen receiving a Social Security check
E. A family buying dinner at a restaurant

34. Why are intermediate goods not included in the calculation of GDP?

A. They can’t be used by consumers in their unfinished state

B. They aren’t subject to sales taxes
C. They are imported
D. They would be double-counted when finished product is counted.
E. They require multiple steps of production.

35. Why are transfer payments not included in the calculation of GDP?

A. Recipients have not produced any output in return for the payment.
B. The payments generally are made to those with the lowest incomes.
C. Government spending is not included in the calculation of GDP.
D. Transfer payments are intended to promote economic activity.
E. Transfer payments have no impact on the economy.

Free-Response Questions

1. GDP

(a) Explain the difference between nominal GDP, real GDP, and GDP per capita.

(b) Suppose that production and prices rise from one year to the next, but population stays constant.
Will each of three statistics above rise, fall, or remain unchanged? Explain your reasoning.

(c) in what type of situation is GDP per capita more appropriate than nominal or real GDP?

(d) Is GDP an under-or overestimate? Explain.

2. Inflation exert significant costs on the economy. Specifically, explain how inflation
i. Causes a misallocation of resources

ii. Discourages savings

iii. Redistributes wealth from lenders to borrowers