Assignment 6
1. The difference between personal income (PI) and disposable personal income (DPI) is
a)
b)
c)
d)
e)
personal tax payments.
welfare benefits.
undistributed corporate income.
social security benefits.
social security taxes.
2. To avoid double counting in calculating GDP,
a)
b)
c)
d)
e)
business investment should be excluded.
the value of intermediate goods and services should be excluded.
net exports should be excluded.
the capital consumption allowance should be excluded.
government purchases should be excluded.
3. Refer to the table above. What is the chain-type real GDP growth rate from 1995 to 2003?
a)
b)
c)
d)
e)
–75%
125%
76%
100%
0 (zero)
4. Which of the following economic activities should not be counted as part of GDP?
a)
b)
c)
d)
e)
A housewife selling cherry pies in the corner store.
The government buying blackboards for public schools.
A student working part time.
The work of a social worker, for which she gets paid.
A gang member selling illegal drugs.
5. The concept of value added refers to
a)
b)
c)
d)
e)
the increase in the value of a product that occurs at each stage of production.
the amount paid in the final sale of a product or service.
the amount subtracted from the value of resources because of depreciation.
the amount subtracted from the value of goods because of inflation.
the total value of all intermediate goods used in the production of the final good.
6. The market value of final goods and services is calculated as
a)
b)
c)
d)
e)
quantities of all final goods.
quantity times price of all final goods.
quantity times price of all intermediate goods.
prices of all goods produced within a given year.
price plus quantities of all intermediate goods.
7. In the United States, consumption accounts for approximately ______ percent of GDP in terms
of total expenditures.
a)
b)
c)
d)
e)
10
14
18
29
68
8. According to the table above, the market price of an economics book is
a)
b)
c)
d)
e)
$71.50.
$38.
$13.50.
$7.75.
$24.50.
9. For the economy described in the table above, disposable personal income is
a)
b)
c)
d)
e)
$1,440.
$1,540.
$1,550.
$1,610.
$1,870.
10. National income accounting can best be characterized as
a)
b)
c)
d)
e)
a microeconomic model used by the Federal Reserve.
a set of rules to summarize economic activity over a given period of time.
a standardized economic report written by politicians.
a statistical measure of the income received by consumers as opposed to businesses.
a system for comparing different political systems.
11. Refer to the table above. What is the price index for the third year?
a)
b)
c)
d)
e)
118
155
183
100
181
12. If the PPI increases, in the future we would expect to see
a)
b)
c)
d)
e)
no change in the CPI.
an increase in the CPI.
real GDP decrease.
a decrease in COLAs.
a decrease in the CPI.
Scenario 2
Suppose that personal income is $250 billion. Furthermore, assume that retained corporate
earnings are $2 billion, social security taxes are $15 billion, social security benefit checks equal
$16 billion, the capital consumption allowance is $32 billion, and corporate profit taxes amount to
$40 billion.
13. Refer to Scenario 2. Gross national product equals
a)
b)
c)
d)
e)
$177.
$259.
$291.
$322.
$323.
14. Using the table above, what is the nominal GDP growth from 1995 to 2003?
a)
b)
c)
d)
e)
11.0%
73.3%
11.4%
13.6%
55.5%
15. Which of the following national income accounts would be the smallest in any year?
a)
b)
c)
d)
e)
NNP
GNP
PI
NI
DPI
16. The producer price index
a)
b)
c)
d)
e)
is also referred to as the wholesale price index.
fluctuates more than the implicit GDP deflator.
is published before the CPI is computed.
is a weighted average of producer price changes.
All of these
17. In economics, the system of measurements applied to compare economic performance
across countries is called
a)
b)
c)
d)
e)
the economic growth model.
the circular flow model.
national income accounting.
capital income accounting.
national flow accounting.
18. A soft-drink bottling company supplies six-packs of orange soda to retailers for a price of $2
each. If the components in each six-pack cost the bottling company $1.50, the value added to
each six-pack by the bottling company is
a)
b)
c)
d)
e)
$2.00.
$1.50.
$1.25.
$1.00.
$0.50.
19. If inventory levels increase for some year in the economy,
a)
b)
c)
d)
e)
then consumption spending must have decreased.
this should be ignored in calculating GDP.
this should be subtracted in computing GDP.
this should be added in computing GDP.
then capital investment must have declined.
20. Which of the following would not be included as part of personal income?
a)
b)
c)
d)
e)
Social security benefits.
Indirect business taxes.
Corporate dividend payments to stockholders.
Food stamps distributed by the government.
Welfare benefits.
Essay Questions
1. Economists would argue that the consumer price index is a quite imprecise measure of
changes in the cost of living. State at least two reasons for the CPI to be downward- or upwardbiased.
2. How is the official GDP statistic affected in the following situations: (a) An addict engages in
illegal drug sales. (b) A college professor gets married and becomes a homemaker. (c) An
autoworker becomes unemployed and collects welfare payments.