Test –
National Income Accounting – Test
GDP
1. A nation’s Gross Domestic Product(GDP):
a. is the dollar value of the total output produced within the borders of the nation.
b. is always some amount less than its NDP.
c. is the dollar value of the total output produced by its citizens, regardless of where they are living.
2. Which of the following is included in GDP?
a. used autos purchased by consumers
b. welfare payments
c. $2,000 purchase of Ford stock
d. purchase an iPod nano at the Apple Store
3. National income accounts can avoid double counting by:
a. only counting intermediate goods and Fuzzy Wuzzys.
b. counting both intermediate & final goods.
c. only counting final goods.
d. counting only components of final goods.
4. The term “final goods and services” refers to:
a. consumer goods bought only on weekdays.
b. the excess of American exports over American imports.
c. goods and services purchased by the ultimate users, as opposed to resale or further processing.
5. To the economist, which is not considered to be investment(Ig)?
a. construction of a new factory
b. purchase of 10,000 shares of Nokia stock
c. the building of an apartment complex
d. additions to inventories
6. The largest component of GDP is:
a. net exports
b. government purchases
7. If
a.
b.
c.
c. personal consumption
d. gross investment
depreciation exceeds gross private domestic investment, then:
net investment is positive.
net investment is negative.
the economy is importing more than it exports.
8. Nominal GDP during one year is $500 and the price index is 125. Real GDP is:
a. $200
b. $450
c. $375
d. $400
e. $325
9. The term “real GDP” refers to:
a. the value of the domestic output after adjustments have been made for environmental
pollution and changes in the distribution of income.
b. GDP data which embody changes in the price level, but not changes in physical output.
c. GDP data which reflect changes in both physical output and the price level.
d. GDP data which have been adjusted for changes in the price level[measures output].
10. Nominal GDP during a particular year is $1050 and the GDP price deflator is 175.
Therefore real GDP is:
a. $600
b. $675
c. $790
d. $210
2000
11. The base year used in determining the price indexes for the economy above:
a. cannot be determined from the information given.
b. is some year before 2000.
c. is more recent than 2000.
d. is 2000.
12.
a.
b.
c.
d.
One year nominal GDP was $286 billion & the price index was 88. Then Real GDP was:
$252 billion
$325 billion
$308 billion
$262 billion
13. As defined in national income accounting, investment refers to:
a. business expenditures on machinery & equipment.
b. all construction(including residential housing).
c. changes in business inventories.
d. all of the above.
14. In an economy, the value of inventories fell from $575 billion in 2000 to $500
billion in 2001. In calculating total investment for 2001, national income
accountants would:
A) decrease it by $75 billion.
B) increase it by $63 billion.
C) decrease it by $12 billion.
D) increase it by $138 billion.
15. Consumption of fixed capital [depreciation] can be determined by:
a. adding indirect business taxes to NDP.
b. adding transfer payments to DI.
c. subtracting In from GDP.
d. subtracting In from Ig.
16. Real GDP in 1995 was $7,544 billion. By 2000 real GDP had risen to
$9,320 billion. The annual growth rate in real GDP over this five-year
period was approximately:
A) 1.5 percent.
B) 2.7 percent.
C) 4.7 percent.
D) 12.1 percent.
17. If average nominal income was about $15,000 and the price level index
was 118, then average real income would be about:
A) $11,146.
B) $12,712.
C) $13,385.
D) $14,249.
18. The GDP deflator or price index equals:
A) gross private domestic investment less the consumption of fixed
capital.
B) gross national product less net foreign factor income earned in the
United States.
C) nominal GDP divided by real GDP.
D) real GDP divided by nominal GDP.
19. In an economy, the total expenditures for a market basket of goods in
year 1 (the base year) was $7,000 billion. In year 2, the total
expenditure for the same market basket of goods was $8,000 billion.
What was the approx. GDP price index for the economy in year 2?
A) 100 B) 110 C) 114 D) 120
20. Which of the following is NOT included in GDP for 2014?
A) Coach Laningham’s lawn service in his neighborhood
B) Coach Laningham’s purchase of a new car
C) Coach Laningham’s teacher salary
D) Coach Laningham repairing his fence after a storm
21. In is equal to
A) Ig minus M
B) X minus M
C) Ig minus Depreciation
D) Ig plus Inflation
22. If CPI falls from 150 to 100 during a particular period:
a. deflation of about 33% has occurred.
b. inflation of about 50% has occurred.
c. inflation of about 33% has occurred.
d. deflation of about 50% has occurred.
23. The phase of the business cycle where real domestic output(GDP) is at a
minimum is called:
a. the peak
b. a recession
c. a trough
d. the pits
24. After graduating from college, Kim is interviewing school districts for a job
teaching economics[must be a “very smart person”]. Kim presently is:
a. cyclically unemployed.
c. structurally unemployed.
b. frictionally unemployed.
d. not a member of the labor force.
25. The labor force includes:
a. employed workers and persons who are officially unemployed[“looking for a job”].
b. employed workers, but excludes persons who are officially unemployed.
c. full-time workers, but excludes part-time workers.
26. Connie Nomic works in her own home as a full time homemaker.
Officially, Connie is:
a. unemployed.
b. employed.
c. in the labor force.
d. not in the labor force.
27. If actual GDP is less than potential GDP[recessionary gap]:
a. potential GDP will fall.
b. The price level will rise.
c. The actual unemployment rate will be higher than the natural unemployment rate.
d. The actual unemployment rate will be lower than the natural unemployment rate.
28. Full-employment output[GDP] is also called:
a. zero-unemployment.
b. Okun’s output.
C. potential output.
Answer the next questions(41-43) on the basis of the following
info in a hypothetical economy for which Okun’s law is applicable:
Nominal GDP = $500 billion
Natural Rate = 5%
Actual rate of unemployment = 9%
29. The size of the GDP gap in % terms is:
a. 9%
b. 18%
c. 6%
d. 8%
“PPC”
9%
30. The amount of output being foregone for this economy is:
a. $30 billion.
b. $36 billion. c. $40 billion.
d. $400 billion.
31. The CPI was 140.3 in 2001 and 144.5 in 2002. Therefore, the rate of
inflation in 2002 was about:
a. 6.7%
b. 1.2%
c. 3.0%
d. 13.6%
32. If Reid’s annual real income rises by 7% each year, his annual real income
will double in about:
a. 9 years
b. 15 years
c. 6 years
d. 10 years
33. Suppose the nominal annual interest rate on a two year loan is 8%
and lenders expect inflation to be 5% in each of the two years.
The annual real rate of interest is:
a. 2%
b. 3%
c. 4%
d. 8%
34. Real GDP was $9,950 billion in Year 1 and $10,270 billion in Year 2.
What was the approximate rate of economic growth from Year 1 to Year 2?
A) 1.6 percent
B) 2.4 percent
C) 3.2 percent
D) 4.3 percent
35. The above diagram is best described as an idealized:
A) business cycle.
B) cyclical variation.
C) recession cycle.
D) prosperity cycle.
36. Which phase of the business cycle would be most closely associated
with an economic contraction?
A) peak
B) recession
C) trough
D) recovery
37. If a nation's real GDP is growing by 3 percent per year, its real domestic
output will double in approximately:
A) 21 years.
B) 23 years.
C) 29 years.
D) 42 years.
38. Okun's law indicates that for:
A) every 1 percent that the actual unemployment rate exceeds the
natural unemployment rate, there is generated a 2 percent GDP
gap.
B) every 1 percent that the actual unemployment rate exceeds the
natural unemployment rate, there is generated a 5 percent GDP
gap.
C) a 5 percent GDP gap, there is generated a 1 percent increase in the
natural unemployment rate.
D) a 2 percent GDP gap, there is generated a 2 percent increase in the
actual unemployment rate.
39. If the natural rate of unemployment is 4.5 percent and the actual
unemployment rate is 6.5 percent, then Okun's law indicates that the
GDP gap is:
A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 6 percent.
40. Inflation that occurs when total spending is greater than the economy's
ability to produce output at the existing price level is:
A) anticipated inflation.
B) demand-pull inflation.
C) cost-push inflation.
D) unanticipated inflation.
Free Response
41. Draw and label the business cycle.
42. What is the formula to calculate GDP using the Expenditure Method.
43. What does each of the above stand for?
In percentage terms, what is the price level increase (from the base year) for
each of the following price indexes?
44. 114
45. 160
46. 127