1.

Which of the following headlines is more closely related to what microeconomists study than to
what macroeconomists study?
a. Unemployment rate falls from 7.5 percent to 7.3 percent.
b. Real GDP falls by 0.4 percent in the third quarter.
c. Inflation was 2.4 percent last year.
d. The price of gasoline rises due to rising oil prices.
D

2. Which of the following topics are more likely to be studied by a macroeconomist than by a
microeconomist?
a. the effect of taxes on the prices of airline tickets, and the profitability of automobile-
manufacturing firms
b. the price of beef, and wage differences between genders
c. how consumers maximize utility, and how prices are established in markets for agricultural
products
d. the percentage of the labor force that is out of work, and differences in average income from
country to country D

3. GDP
a. is used to monitor the performance of the overall economy but is not the single best
measure of a society’s economic well-being.
b. is used to monitor the performance of the overall economy and is the single best measure
of a society’s economic well-being.
c. is not used to monitor the performance of the overall economy but is the single best
measure of a society’s economic well-being.
d. is not used to monitor the performance of the overall economy and is not the single best
measure of a society’s economic well-being. B

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 economy’s 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 society’s economic well-being.
d. All of the above are correct.

5. If an economy’s GDP falls, then it must be the case that the economy’s
a. income falls and saving rises.
b. income and saving both fall.
c. income falls and expenditure rises.
d. income and expenditure both fall.

6. For an actual economy, total expenditures on goods and services by households does not equal GDP
because
a. household spending exceeds their incomes.
b. household expenditures on goods and services falls short of GDP, since household save for
 the future.
c. household expenditures include only goods, since services are intangible and cannot be
measured accurately.
d. household expenditures on goods and services are made using borrowed funds.

7. Which of the following is a way to compute GDP?

a. add up the wages paid to all workers
b. add up the quantities of all final goods and services
c. add up the market values of all final goods and services
d. add up the difference between the market values of all final goods and services and then
subtract the costs of producing those goods and services

8. If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes
a. exactly one-third as much to GDP as does a dress.
b. more than one-third as much to GDP as does a dress.
c. less than one-third as much to GDP as does a dress.
d. exactly one-fourth as much to GDP as does a dress.

9. Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard.
Regarding these two practices, which of the following statements is correct?
a. Only Joe’s grocery store purchases are included in GDP.
b. Only Joe’s and Jim’s grocery store purchases are included in GDP.
c. Joe’s and Jim’s grocery store purchases are included in GDP. The vegetables from Jim’s
backyard garden are included at their market value.
d. Joe’s and Jim’s grocery store purchases are included in GDP. The vegetables from Jim’s
backyard garden are included at their market value, if Jim provides this information.

10. The purchase of rice produced this period is included in GDP if the rice is
a. used in a meal a restaurant sells during the same period they buy the rice.
b. purchased by a family who uses it to make tuna casserole for its supper.
c. purchased by a frozen food company to increase its inventory.
d. B and C are correct.

11. One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for
$3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer
for $2.00. Taking these four transactions into account, what is the effect on GDP?
a. GDP increases by $3.00.
b. GDP increases by $5.00.
c. GDP increases by $6.00.
d. GDP increases by $7.00.

12. A farmer sells five pounds of pecans to a Smith’s Fresh Pecans for $10. Smith’s Fresh Pecans
resells three pounds for $4.50 per pound. The remaining pecans are shelled and canned and sold for a
total of $8.00 Taking these transactions into account, how much is added to GDP?
a. $22.50
b. $29.50
c. $21.50
d. $31.50
13. In 2014, a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company. Big
Flakes Cereal Company produces $8 million worth of cereal in 2014, with sales to households during
the year of $7 million. The unsold $1 million worth of cereal remains in Big Flake Cereal Company’s
inventory at the end of 2014. The transactions just described contribute how much to GDP for 2014?
a. $3 million
b. $7 million
c. $8 million
d. $11 million

14. Fine Edge manufactures lawn mowers. In 2014 it had $2 million worth of lawn mowers in
inventory. In 2015 it sold $10 million worth of lawn mowers to consumers and had $1 million worth
of lawn mowers in inventory. How much did the lawn mowers produced by Fine Edge add to GDP in
2015?
a. $11 million
b. $10 million
c. $7 million
d. $9 million

15. Consumption consists of spending by households on goods and services, with the exception of
a. purchases of intangible services.
b. purchases of durable goods.
c. purchases of new houses.
d. spending on education.

16. Which of the following is not included in the investment component of GDP?
a. The purchase of 100 shares of stock.
b. The purchase of a $1000 bond.
c. A firm’s purchase of a used van to use for deliveries.
d. None of the above are included in the investment component of GDP.

17. Which of the following is included in the consumption component of U.S. GDP?
a. purchases of staplers, paper clips, and pens by U.S. business
firms
b. purchases of natural gas by U.S. households
c. purchases of newly constructed homes by U.S. households
d. All of the above are correct.

18. Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The
end result of these two transactions is
a. U.S. consumption purchases increase by $200 and U.S. GDP increases by $200.
b. U.S. consumption purchases increase by $200 and U.S. GDP increases by $10,000.
c. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,200.
d. U.S. consumption purchases increase by $10,200 and U.S. GDP increases by $10,200.

19. GA wind farm in Iowa buys a large turbine generator from a Swedish-owned factory located in
Connecticut that uses workers who live in Connecticut. As a result,
a. U.S. investment, GDP, and GNP all increase by the same amount.
 b. U.S. investment increases, but GDP and GNP are unaffected by the purchase.
c. U.S. investment and GDP increase by the same amount, but U.S. GNP increases by a
smaller amount.
d. U.S. investment and GNP increase by the same amount, but U.S. GDP increases by a
smaller amount.

20. A stove is produced by a firm in 2014, added to the firm’s inventory in 2014, and sold to a
household in 2015. It follows that
a. the value of the good is added to the investment category of 2014 GDP, added to the
consumption category of 2015 GDP, and subtracted from the investment category of 2015
GDP.
b. the value of the good is added to the investment category of 2014 GDP, added to the
consumption category of 2015 GDP, and not included in the investment category of 2015
GDP.
c. the value of the good is added to the investment category of 2014 GDP, subtracted from
the consumption category of 2015 GDP, and not included in the investment category of
2015 GDP.
d. the value of the good is added to the investment category of 2014 GDP, subtracted from
the consumption category of 2015 GDP, and added to the investment category of 2015
GDP.

21. Transfer payments

a. are payments that flow from government to households.
b. are not made in exchange for currently produced goods or services.
c. alter household income, but they do not reflect the economy’s production.
d. All of the above are correct.

22. Social Security payments are

a. included in GDP because they represent current income.
b. included in GDP because they represent potential consumption.
c. excluded from GDP because they are not private pensions.
d. excluded from GDP because they do not reflect the economy’s
production.

23. To encourage formation of small businesses, the government could provide subsidies; these
subsidies
a. would be included in GDP because they are part of government purchases.
b. would be included in GDP because they are part of investment expenditures.
c. would not be included in GDP because they are transfer payments.
d. would not be included in GDP because the government raises taxes to pay for them.

24. 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.
25. If a U.S. citizen buys a television made in Korea by a Korean firm, then
a. U.S. net exports decrease and U.S. GDP decreases.
b. U.S. net exports are unaffected and U.S. GDP decreases.
c. U.S. net exports are unaffected and U.S. GDP is unaffected.
d. U.S. net exports decrease and U.S. GDP is unaffected.

26. If a U.S. company buys an electrical generator made in Japan by a Japanese firm, and the Japanese
firm uses the payment to buy stocks issued by a U.S. company then
a. U.S. exports and U.S imports increase.
b. U.S. exports but not U.S. imports increase.
c. U.S. imports but not U.S. exports increase.
d. neither U.S. exports nor U.S. imports increase.

27. A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated
by U.S citizens. In which of the following components of U.S. GDP is this transaction accounted for?
a. consumption and imports
b. consumption but not imports
c. imports but not consumption
d. neither consumption nor
imports

28. Changes in nominal GDP reflect

a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produced.
d. neither changes in prices nor changes in the amounts being produced.

29. Changes in real GDP reflect

a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produced.
d. neither changes in prices nor changes in the amounts being produced.

30. When economists talk about growth in the economy, they measure that growth as the
a. absolute change in nominal GDP from one period to another.
b. percentage change in nominal GDP from one period to another.
c. absolute change in real GDP from one period to another.
d. percentage change in real GDP from one period to another.

31. Changes in the GDP deflator reflect

a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produced.
d. neither changes in prices nor changes in the amounts being produced.

32. A country’s real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700.
What was this country’s inflation rate?
 a. 16.7%.
b. 10.0%.
c. 15.0%.
d. -9.1%.

33. If real GDP doubles and the GDP deflator doubles, then nominal GDP
a. remains constant.
b. doubles.
c. triples.
d. quadruples.

34. Suppose an economy produces only cranberries and maple syrup. In 2010, 50 units of cranberries
are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit. In 2009, the base year, the
price of cranberries was $10 per unit and the price of maple syrup was $15 per unit. For 2010,
a. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90.
b. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 111.1.
c. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 90.
d. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 111.1.

Table 23-6

The table below contains data for the country of Batterland, which produces only waffles and
pancakes. The base year is 2013 .
Prices and Quantities
Price of Quantity of Quantity of
Year Price of Pancakes
Waffles Waffles Pancakes
2010 $2.00 80 $1.00 100
2011 $2.00 100 $2.00 120
2012 $2.00 120 $3.00 150
2013 $4.00 150 $3.00 200

36. Refer to Table 23-6. In 2013, this country's real GDP was
a. $500.
b. $700.
c. $900.
d. $1200.

37. Refer to Table 23-6. In 2010, this country's GDP deflator was
a. 41.9.
b. 100.
c. 165.0.
d. This cannot be calculated from the information given.

38. Refer to Table 23-6. In 2013, this country's GDP deflator was
a. 1.0.
b. 100.0.
c. 171.4.
 d. 240.0.

39. Refer to Table 23-6. In 2011, this country's GDP deflator was
a. 57.9.
b. 100.0.
c. 137.5.
d. 169.2.

40. Refer to Table 23-6. In 2012, this country's GDP deflator was
a. 74.2.
b. 100.0.
c. 171.4.
d. 240.0.

41. Refer to Table 23-6. From 2012 to 2013, this country's output grew
a. 28.2%.
b. 29.0%.
c. 29.6%.
d. 73.9%.

42. Refer to Table 23-6. This country's inflation rate from 2010 to 2011 was
a. 1.38%.
b. 38.20%.
c. 138.20%.
d. 41.90.

43. Refer to Table 23-6. This country's inflation rate from 2012 to 2013 was
a. 35.6%.
b. 25.8%.
c. 34.8%.
d. 100.0%.

44. Many things that society values, such as good health, high-quality education, enjoyable recreation
opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It
follows that
a. GDP is not a useful measure of society's welfare.
b. GDP is still a useful measure of society's welfare because providing these other attributes
is the responsibility of government.
c. GDP is still a useful measure of society's welfare because it measures a nation's ability to
purchase the inputs that can be used to help produce the things that contribute to welfare.
d. GDP is still the best measure of society's welfare because these other values cannot
actually be measured.
45. Suppose the government eliminates all environmental regulations and, as a result, the production
of goods and services increases, but there is considerably more pollution. Based on this scenario,
which of the following statements is correct?
a. GDP would definitely increase, despite the fact that GDP includes environmental
quality.
b. GDP would definitely decrease because GDP includes environmental quality.
c. GDP would definitely increase because GDP excludes environmental quality.
d. GDP could either increase or decrease because GDP excludes environmental quality.

46. 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.

47. International data on GDP and socioeconomic variables

a. are inconclusive about the relationship between GDP and the economic well-being of
citizens.
b. suggest that poor nations actually might enjoy a higher standard of living than do rich
nations.
c. leave no doubt that a nation's GDP is closely associated with its citizens' standard of living.
d. indicate that there are few real differences in living standards around the world, in spite of
the large differences in GDP between nations.

48. International studies of the relationship between GDP per person and quality of life measures such
as life expectancy and literacy rates show that larger GDP per person is associated with
a. longer life expectancy and a lower percentage of the population that is literate.
b. longer life expectancy and a higher percentage of the population that is literate.
c. very nearly the same life expectancy and a lower percentage of the population that is
literate.
d. very nearly the same life expectancy and a higher percentage of the population that is
literate.