Correct answers are indicated by
underlined letter.
All contents are ©2000 by Ray Bromley
12-1 Which of the following would not be counted
in GDP for this year?
A. Jerry Actrick hires an auto restoration specialist to refurbish
his 1935 Ford automobile.
B. Rick O'Shea purchases a Glock pistol from a licensed gun dealer
at a gun show.
C. Brandon Irons, a cattle rancher, buys a new bull for
his herd.
D. Kelly Greens, a retired stockbroker, replaces her old golf
cart with a new one.
E. Jimmy Open purchases tools at the Home Depot, which he uses
to break into your house.
12-2 Which of the following will increase GDP this year?
A. You suffer $10,000 in damage when a hurricane strikes your
house.
B. You win $10,000 in the Arizona Lottery.
C. You pay $300 rent on your apartment.
D. Your parents give you a gift of $500.
E. You get a raise from $5.00 to $6.00 per hour but cut your work
from 30 to 25 hours a week.
12- 3 Which of the following will increase GDP this year?
A. Chip Endale, a furniture retailer, sells $100,000 of furniture
from inventories built up last year.
B. Cammy Leon uses some lumber sitting in her backyard to build
a doghouse for her dog.
C. Leslie buys Chris's two-year-old car for $10,000.
D. Patty Wack sells a five-year-old car for $5,000.
E. Wendy Roads pays a repair shop $500 to put a new radiator
in her 1997 Chevy Suburban.
12-4 Which of the following will be directly counted in GDP this
year?
A. The purchase of flour by the SteelChildren brand bread company
to make its product.
B. The sale of a Banana iSplit computer (made entirely
in the USA) to a student.
C. The sale of fertilizer to a farmer who grows artichokes.
D. The sale of stock in the MiniSquish Corporation to a beautician
saving for her retirement.
E. The sale of lumber to a home building and construction firm.
12-5 Which of the following would be counted in GDP this year?
A. You get a $500 refund on your Federal income taxes.
B. You get a $5000 insurance settlement from a driver that rear-ended
your car.
C. You buy a $5000 used car from its previous owner.
D. You buy a set of floor mats from AutoPlace to put in
your car.
E. You fix the leaky faucet in your kitchen using an old washer
you found in your garage.
12-6 Which of the following will contribute to GDP for this year?
A. Your family gardener quits, because it is more profitable for
him to sell drugs than to cut lawns.
B. A burglar steels your TV set.
C. Your friend loans you a TV set to replace the stolen one.
D. The police hire an extra detective to track down the
thief that stole your TV set.
E. You receive an "A" in economics.
12-7 The largest component of GDP is
A. Consumption
B. Investment
C. Savings
D. Government Spending
E. Taxation
12-8 Which of the following is not counted
in GDP when the expenditure approach is used?
A. Consumption Spending
B. Investment Spending
C. Net Exports
D. Government Spending
E. Taxation
12-9 Ray Diho buys a Japanese-made boom box at
a local TransitorTown store. In what way does this purchase affect
U.S. GDP?
A. GDP will go up by the entire amount of the purchase, since
the boom box was sold in the U.S.
B. GDP will go up by the amount of the purchase price minus
the price the importer paid to buy the boom box from the Japanese
producer.
C. GDP will go up by the amount of purchase price minus the salaries
paid to TransitorTown employees (and other costs of operating
TransistorTown), minus the price paid to import the boom box.
D. GDP will not be affected, since the boom box was not made in
the U.S.
E. GDP will go down by the amount of the purchase price, since
the boom box was not made in the U.S.
12-10 Which of the following would be counted in GDP?
A. Goods which are produced domestically during the year
but placed in inventory instead of being sold to consumers.
B. Consumers' spending on domestically produced goods which are
illegal to produce and sell, such as illegal drugs.
C. Consumer purchases of quality used domestically produced goods,
such as used automobliles and previously owned homes.
D. Government payments to a single mother with several young children.
E. Purchases of stocks and bonds issued by U.S. corporations.
12-11 Which of the following would not be counted in GDP?
A. A Cambridge Wanderer minivan which is produced domestically
this year but which is not sold to the consumer until next year.
B. The sales commission or brokerage fee charged for selling MiniSquish
Corporation stock.
C. The sale of illegally produced "bootleg" copies
of the latest Space Battles film at the local video store.
D. The commission a salesperson earns by selling a Yotayo Komono
imported car to a local resident.
E. The purchaseof domestically produced "Workguy" cordless
drill that a homeowner buys at a local department store to make
repairs on her ten year old home.
12-12 Which of the following is a major shortcoming of GDP as
a measure of a society's well-being?
A. Goods produced but not exchanged during the period are excluded.
B. It tends to overstate the growth of economic welfare.
C. The value of production that does not involve monetary
exchange is often ignored.
D. It includes illegal activities.
E. It includes profit, which is not part of the well-being of
consumers.
12-13 Nominal GDP might give a misleading measure
of change in national output between two periods because
A. price levels may change.
B. it does not count the sale of stocks and bonds.
C. it fails to consider intermediate goods, such as those that
are used to produce other goods and services.
D. it fails to include government transfers.
E. the production of illegal goods and services is not counted.
12-14 Which of the following is the best example of inflation?
A. An increase in the general price level but not in every
product's price.
B. A large increase in the price of food.
C. A decrease in the price of food.
D. An increase in the price of almost every product but (because
of some large price decreases) not in the general price level.
E. A rise in real GDP, but a fall in nominal GDP.
12-15 What is the difference between a "real" value
and a "nominal" value in economics?
A. A real value is one that is corrected to eliminate the
effect of inflation an price increases. A nominal value is not
corrected.
B. A real value is one that is actually collected and checked
for accuracy. A nominal value is an estimate.
C. A real value is generally quite large (such as GDP). A nominal
value is usually small.
D. A real value involves information about something which can
be directly measured. A nominal value is used as a proxy of something
that cannot be directly measured.
E. A real value is one that is corrected for growth over time.
A nominal value is not corrected for growth.
12-16 How are real GDP and nominal GDP related?
A. The real GDP is the nominal GDP multiplied by the price
index of a different (usually earlier) year, divided by the price
index of the current year.
B. The real GDP is the nominal GDP multiplied by the price index
of the current year, divided by the price index of a different
(usually earlier) year.
C. The real GDP is not related to the nominal GDP. They are based
on different kinds of data and information.
D. The real GDP is the nominal GDP minus depreciation and indirect
business taxes.
E. The real GDP is the nominal GDP times the interest rate or
growth rate.
12-17 If you were asked to study the production of the economy
during the last three years, why might you prefer to use real
GDP as opposed to nominal GDP?
A. Real GDP is more complete than nominal GDP, since it includes
government activity.
B. Nominal GDP is less precise, since it does not take into account
externalities, while real GDP does.
C. Nominal GDP does not adjust for underemployment of workers,
while real GDP does.
D. Nominal GDP includes things like government transfers, whereas
real GDP does not.
E. Nominal GDP includes changes in prices as well as output,
while real GDP does not.
12-18 What is a price index?
A. 100 times the ratio of prices to GDP.
B. 100 times the ratio of the cost of buying a bundle of
goods in one year to the cost of buying the same goods in some
other (usually prior) base year.
C. 100 times the ratio of inflation in one year to inflation in
some other (usually prior) base year.
D. 100 times the ratio of GDP in one year to GDP in some other
(usually prior) base year.
E. 100 times the ratio of GDP to the level of prices.
12-19 Which of the following is a price index?
A. Gross Domestic Product.
B. Real GDP.
C. Nominal GDP.
D. GDP Delfator.
E. The Inflation Rate.
12-20 Suppose that nominal GDP increased by 3% between January
and May, but real GDP decreased by 2% during that period. What
does it mean?
A. Prices rose by about 3%
B. Prices fell by about 2%
C. There was deflation
D. Prices rose by about 5%
E. Real output would have increased if there had been no inflation.
12-21 Between 1977 and 1987, the federal minimum wage rose from
$2.65 an hour to $3.35 an hour. During the same time, the CPI
rose from about 180 to about 360. This is evidence that
A. the minimum wage rose in real and nominal terms.
B. the minimum wage fell in real terms but rose in nominal
terms.
C. the minimum wage fell in nominal terms but rose in real terms.
D. the minimum wage rose in real terms, but we can't say anything
else for certain.
E. the minimum wage fell in real terms, but we can't say anything
else for certain.
12-22 Real GDP might give a misleading measure of change in national
output between two periods because
A. imports are not counted.
B. new goods may be produced in the latter period which
cannot be easily compared to earlier goods.
C. it fails to include government transfers.
D. price levels may change.
E. it does not include the sale of stocks and bonds.
12-23 If the Consumer Price Index was 150 in 1989 and 165 in 1990,
the rate of inflation was
A. we cannot tell without more information
B. 5 percent
C. 10 percent
D. 15 percent
E. 9 percent
The following table contains actual information about the U.S. economy between 1970 and 1998. The base year for the price index is 1982.
| Year | Nominal
GDP (in billions) |
Real
GDP (in billions) |
Consumer Price Index (1982=100) |
| 1970 | $1015.5 | $2617.3 | |
| 1980 | $3315.5 | 82.4 | |
| 1990 | $5546.1 | 130.7 | |
| 1995 | $7253.8 | $4759.7 | |
| 1997 | $5053.5 | 160.5 | |
| 1998 | $8511.0 | 163.0 |
12-36 Based on the table above, what was the
growth in real GDP between 1990 and 1998?
A. 32.3%
B. 24.7%
C. 23.0%
D. 18.7%
E. 19.8%
12-37 Based on the table above, what was the growth in prices
between 1990 and 1998?
A. 32.3%
B. 23.0%
C. 63.0%
D. 19.8%
E. 24.7%
12-38 Assume that between 1980 and 1990, nominal GDP increased
from $1000 billion to $2500 billion, and the index of prices increased
from 100 to 200. Which of the following expresses GDP for 1990
in terms of 1980 prices?
A. $1000
B. $1250
C. $2000
D. $2500
E. $5000
12-39 In the nation of Myopia, the expected rate of inflation
is always zero, and inflation comes as a complete surprise to
Myopics. Their neighbors in Presbyopia, however, always expect
100% inflation and are shocked if the price level rises by less
than that (which it almost always does). Which of the following
would you rather be?
A. A borrower in Myopia.
B. A borrower in Presbyopia
C. A lender in Myopia
D. We cannot tell without more information.
E. Neither a borrower nor a lender be.
12-40 Which of the following will be helped by an unanticipated
inflation of 5%?
A. A single mother with a 30-year fixed rate mortgage on
her house, and no assets other than her home.
B. A family holding most of its wealth in long-term fixed rate
bonds.
C. A retiree drawing a monthly pension.
D. A worker whose wages are determined by a three-year contract
she signed two months ago.
E. None of the above.
12-41 Which of the following will be helped by a completely anticipated
inflation of 5%?
A. A single mother with a 30-year fixed rate mortgage on her house,
and no assets other than her home.
B. A family holding most of its wealth in long-term fixed rate
bonds.
C. A retiree drawing a monthly pension.
D. A worker whose wages are determined by a three-year contract
she signed two months ago.
E. None of the above
12-42 Which of the following will be hurt by an unanticipated
inflation of 5%?
A. A single mother with a 30-year fixed rate mortgage on her house,
and no assets other than her home.
B. A student who has $25000 in student loans to pay back at 6%
interest.
C. A driver who has just purchased and financed a new car.
D. A woman who has been saving for retirement and put her
money in a fixed-rate bank account.
E. A worker whose wages are determined by contract with cost of
living adjustments (COLAs) built in.
12-43 Unanticipated inflation
A. will normally hurt creditors but help borrowers.
B. will normally help creditors but hurt borrowers.
C. will help no one.
D. has never been a problem for modern economies.
E. has no noticeable effects; since it is unanticipated, it cannot
affect anyone's plans.
12-44 Which of the following do you think will make a job-seeker
more likely to keep looking for a job, rather than accept
an available job offer?
A. Rumors that a major employer in the area will be expanding
employment in the next few weeks.
B. A policy that limits the availability of unemployment benefits,
preventing people who have turned down job offers from collecting
benefits thereafter.
C. Fear that the economy will not grow as quickly in the future
as it is now.
D. all of the above.
E. none of the above.
12-45 The nation of Stupidiot has a population of 20,000. Of these,
11,000 are not currently working. 7,000 are working full time,
2,000 are working part-time and 1,000 are looking for work. The
unemployment rate is
A. 55%
B. 11.1%
C. 10%
D. 9.9%
E. 5%
12-46 The unemployment rate is
A. the number of persons in the country that are not currently
working.
B. the number of people in the labor force who are not currently
working.
C. the number of people over 18 and under 65 who are not currently
working.
D. the percentage of the labor force which is not currently
working.
E. the percentage of the population which is not currently working.
12-47 Full employment occurs when
A. everyone between the ages of 18 and 65 is in the labor force
and is working.
B. the unemployment rate is equal to zero.
C. unemployment is at the "natural rate."
D. there is no frictional unemployment.
E.the only unemployment is due to structural changes in the economy
or business cycles.
12-48 Frictional unemployment
A. would decrease if information about jobs were made easier
to get.
B. would increase if improved methods of disseminating information
to unemployed workers were developed.
C. would decrease if unemployment compensation payments rose.
D. is caused by disequilibrium (such as price floors) in job markets.
E. is caused by changes in the skilled workers need in a changing
job market.
12-49 Unemployment which is explained by delays in getting training
for a new occupation (or delays in realizing that such training
is needed) is called
A. "structural"
B. "frictional."
C. "cyclical."
D. "natural."
E. "institutional."
12-50 Structural u nemployment means that
A. employment in the building trades is insufficient.
B. there are not enough jobs to go around.
C. worker qualifications do not match available jobs.
D. jobs are plentiful, but workers are scarce.
E. information about jobs is costly.
All content on this page is ©2000 by Ray Bromley
Chapter 12Questions