Fall 2013: Mercer University
Econ 151: Introduction to Macroeconomics
Homework 2: Answers
Table 7-7
Corporate profits
Interest income
Indirect business taxes
Depreciation
Employee compensation
Proprietors' income
Rents
Personal consumption
Government consumption and gross investment
Net income earned abroad
$300
200
360
400
3,000
200
40
2,700
800
20
1) Refer to Table 7-7. Gross domestic product equals
a. $3,700.
b. $3,900.
c. $4,080.
d. $4,480.
ANS: D
PTS: 1
STA: DISC: Measuring the Economy
KEY: Bloom's: Analysis
DIF: Challenging NAT: BUSPROG: Analytic
TOP: GDP as a Measure of Both Output and Income
Use the table below to choose the correct answer.
Table 7-8
Corporate profits
Interest income
Indirect business taxes
Depreciation
Employee compensation
Proprietors' income
Rents
Personal consumption
Government consumption and gross investment
Net exports
Income received by citizens for factors of production supplied abroad
Income paid to foreigners for their contribution to domestic output
2) Refer to Table 7-8. Gross domestic product equals
a. $5,500.
b. $5,650.
c. $5,800.
$1,000
200
400
300
3,200
600
100
2,950
1,200
100
300
150
d. $6,650.
ANS: B
PTS: 1
DIF: Challenging NAT: BUSPROG: Analytic
STA: DISC: Measuring the Economy
TOP: GDP as a Measure of Both Output and Income
KEY: Bloom's: Analysis
Use the table below to choose the correct answer.
Personal consumption expenditures
Government consumption and gross investment
Rent income
Net investment expenditures
Gross imports
Personal savings
Gross exports
Depreciation
$300
115
75
100
15
125
10
50
3) Gross domestic product equals
a. $550.
b. $510.
c. $595.
d. $610.
ANS: B
PTS: 1
DIF: Moderate
NAT: BUSPROG: Analytic
STA: DISC: Measuring the Economy
TOP: GDP as a Measure of Both Output and Income
KEY: Bloom's: Application
MSC: On-line Practice
4) General Motors Corporation (a U.S.-based firm) produces a Saab vehicle in Sweden, and sells it in the United
States. In which country's GDP is it included?
a. Sweden and the United States
b. The United States because it was sold there
c. The United States because GM is a U.S. company
d. Sweden because it was produced there
ANS: D
PTS: 1
DIF: Moderate
NAT: BUSPROG: Analytic
STA: DISC: Measuring the Economy
TOP: GDP-A Measure of Output
KEY: Bloom's: Application
5) New residential housing is counted in GDP as a(n)
a. durable consumption good.
b. household durable good.
c. investment good.
d. inventory expansion.
e. long-term durable good.
ANS: C
PTS: 1
STA: DISC: Measuring the Economy
KEY: Bloom's: Comprehension
DIF: Easy
NAT: BUSPROG: Analytic
TOP: GDP as a Measure of Both Output and Income
6) Which of the following would increase the GDP of the United States?
a. A resident of California buys a case of wine from a winery in France.
b. A resident of Germany buys a software program from a company in Washington.
c. A resident of Florida spends $3,000 on a vacation in Mexico.
d. A Japanese investor purchases 100 shares of a computer company located in Illinois.
ANS: B
PTS: 1
DIF: Moderate
NAT: BUSPROG: Analytic
STA: DISC: Measuring the Economy
TOP: GDP-A Measure of Output
KEY: Bloom's: Application
7) Greg, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
ANS: C
PTS: 1
STA: DISC: Measuring the Economy
KEY: Bloom's: Application
DIF: Moderate
NAT: BUSPROG: Analytic
TOP: GDP as a Measure of Both Output and Income
8) Anna, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included
a. in U.S. GDP, but it is not included in German GDP.
b. in German GDP, but it is not included in U.S. GDP.
c. in both German GDP and U.S. GDP.
d. in neither German GDP nor U.S. GDP.
ANS: B
PTS: 1
DIF: Moderate
NAT: BUSPROG: Analytic
STA: DISC: Measuring the Economy
TOP: GDP as a Measure of Both Output and Income
KEY: Bloom's: Application
9) To encourage formation of small businesses, the government could provide subsidies; these subsidies would
be
a. included in GDP because they are part of government expenditures.
b. included in GDP because they are part of investment expenditures.
c. omitted from GDP because they are transfer payments.
d. omitted from GDP because the government raises taxes to pay for them.
ANS: C
PTS: 1
DIF: Moderate
NAT: BUSPROG: Analytic
STA: DISC: Measuring the Economy
TOP: GDP as a Measure of Both Output and Income
KEY: Bloom's: Comprehension
10) Which of the following about inventory changes and GDP is true?
a. Inventory investment adds to GDP because it represents goods produced during the
current period.
b. Inventory investment is subtracted from GDP because the goods were not sold during the
period.
c. Inventory investment does not affect GDP because the goods were not sold during the
period.
d. Inventory investment does not affect GDP because it does not represent goods produced
during the period.
ANS: A
PTS: 1
STA: DISC: Measuring the Economy
KEY: Bloom's: Application
DIF: Moderate
NAT: BUSPROG: Analytic
TOP: GDP as a Measure of Both Output and Income
11) Suppose an economy is operating at its maximum sustainable output rate. Neither recession nor economic
boom are present. Which of the following would be true?
a. The economy would be considered at full employment.
b. Actual GDP would exceed potential GDP.
c. Actual unemployment will be less than the natural rate of unemployment.
d. One hundred percent of the labor force is employed.
ANS: A
PTS: 1
STA: DISC: Measuring the Economy
KEY: Bloom's: Comprehension
DIF: Moderate
NAT: BUSPROG: Analytic
TOP: Actual and Potential GDP
MSC: Suggested Quiz
12) Which of the following individuals would be considered unemployed by the official government definition?
a. George, a mathematician, who returned to graduate school after failing to find a job the
last four months
b. Gwen, a medical student, who is still in college and is not working
c. Morgan, who is employed part-time but desires a full-time job
d. Ralph, an auto worker vacationing in Florida during a layoff at a General Motors plant
ANS: D
PTS: 1
DIF: Moderate
NAT: BUSPROG: Analytic
STA: DISC: Labor markets
TOP: Economic Fluctuations and the Labor Market
KEY: Bloom's: Application
MSC: Suggested Quiz
13) Which of the following is true?
a. Anticipated inflation is an increase in the price level that comes as a surprise, at least to
most individuals.
b. Unanticipated inflation is a change in the price level that is widely expected.
c. Decision makers are generally able to anticipate slow steady rates of inflation with a fairly
high degree of accuracy.
d. Inflation will increase the prices of goods and services that households purchase but not
the wage rates of workers.
ANS: C
PTS: 1
STA: DISC: Measuring the Economy
KEY: Bloom's: Comprehension
DIF: Moderate
NAT: BUSPROG: Analytic
TOP: The Effects of Inflation
MSC: Suggested Quiz
14) The distinguishing characteristics of business cycles are
a. periods of inflation followed by periods of deflation.
b. high rates of economic growth coupled with high rates of unemployment.
c. a constant rate of economic growth coupled with ups and downs in the general level of
prices.
d. periods of growth in real output followed by periods of decline.
ANS: D
PTS: 1
DIF: Easy
NAT: BUSPROG: Analytic
STA: DISC: Productivity and growth
TOP: Swings in the Economic Pendulum
KEY: Bloom's: Knowledge
15) Which of the following will most likely occur during the recessionary phase of a business cycle?
a. Real GDP rises, and the unemployment rate falls.
b. Real GDP declines, and the rate of inflation rises.
c. The sales of most businesses decline, and the unemployment rate rises.
d. Inflation rises, and employment/population ratio falls.
ANS: C
16) Mallory Trammell is a homemaker. Last week, she was busy with her normal household chores. She is
a. a member of the civilian labor force who is employed.
b. a member of the civilian labor force who is unemployed.
c. a member of the civilian labor force who is underemployed.
d. a discouraged worker who is not a member of the labor force.
e. not a member of the labor force.
ANS: E
PTS: 1
STA: DISC: Labor markets
KEY: Bloom's: Application
DIF: Easy
NAT: BUSPROG: Analytic
TOP: Economic Fluctuations and the Labor Market
17) Use the data below to answer the following question.
Population
Number in the labor force
Number employed full time
Number employed part time
Number unemployed
60 million
50 million
38 million
10 million
2 million
What is the unemployment rate of the economy?
a. 3.3 percent
b. 4 percent
c. 5 percent
d. 5.3 percent
ANS: B
PTS: 1
DIF: Moderate
NAT: BUSPROG: Analytic
STA: DISC: Labor markets
TOP: Economic Fluctuations and the Labor Market
KEY: Bloom's: Application
18) The population (age 16 and over) of Italia is 100 million; 5 million are unemployed, and 40 million hold
jobs. The labor force participation rate in Italia is
a. 10 percent.
b. 45 percent.
c. 50 percent.
d. 90 percent.
ANS: B
19) Which of the following will be true for an economy that is operating at full employment?
a. The rate of unemployment will be zero.
b. The actual rate of unemployment will be equal to the natural rate.
c. The employment/population ratio will be equal to 100 percent.
d. Everyone who would like to have a job will be employed.
ANS: B
20) Which of the following is a danger of inflation?
a. Price changes can affect the people who sign long-term contracts.
b. Rapid price changes reduce uncertainty.
c. Anticipated inflation may be greater than unanticipated inflation.
d. High rates of inflation will reduce interest rates.
ANS: A
PTS: 1
STA: DISC: Measuring the Economy
KEY: Bloom's: Comprehension
DIF: Moderate
NAT: BUSPROG: Analytic
TOP: The Effects of Inflation