Chapter 23 Measuring a Nation's IncomeMULTIPLE CHOICE1. Macroeconomists studya. the decisions of individual households and firms.b. the interaction between households and firms.c. economy-wide phenomena.d. regulations imposed on firms and unions.ANS: C DIF: 1 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: MacroeconomicsMSC: Definitional2. Which of the following newspaper headlines is more closely related to what microeconomists studythan to what macroeconomists study?a. Unemployment rate rises from 5 percent to 5.5 percent.b. Real GDP grows by 3.1 percent in the third quarter.c. Retail sales at stores show large gains.d. The price of oranges rises after an early frost.ANS: D DIF: 2 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: MacroeconomicsMSC: Interpretive3. Which of the following questions is more likely to be studied by a microeconomist than a macroecon-omist?a. Why do prices in general rise by more in some countries than in others?b. Why do wages differ across industries?c. Why do national production and income increase in some periods and not in others?d. How rapidly is GDP currently increasing?ANS: B DIF: 2 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: MacroeconomicsMSC: Interpretive4. Which of the following topics are more likely to be studied by a macroeconomist than by a microe-conomist?a. the effect of taxes on the prices of airline tickets, and the profitability of automobile-manufacturing firmsb. the price of beef, and wage differences between gendersc. how consumers maximize utility, and how prices are established in markets for agriculturalproductsd. the percentage of the labor force that is out of work, and differences in average income fromcountry to countryANS: D DIF: 2 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: MacroeconomicsMSC: Interpretive5. We would expect a macroeconomist, as opposed to a microeconomist, to be particularly interested ina. explaining how economic changes affect prices of particular goods.b. devising policies to deal with market failures such as externalities and market power.c. devising policies to promote low inflation.d. identifying those markets that are competitive and those that are not competitive.ANS: C DIF: 2 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: MacroeconomicsMSC: Interpretive12 ❖Chapter 23/Measuring a Nation's Income6. Which of the following is not a question that macroeconomists address?a. Why is average income high in some countries while it is low in others?b. Why does the price of oil rise when war erupts in the Middle East?c. Why do production and employment expand in some years and contract in others?d. Why do prices rise rapidly in some periods of time while they are more stable in other periods? ANS: B DIF: 2 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: MacroeconomicsMSC: Interpretive7. The basic tools of supply and demand area. useful only in the analysis of economic behavior in individual markets.b. useful in analyzing the overall economy, but not in analyzing individual markets.c. central to microeconomic analysis, but seldom used in macroeconomic analysis.d. central to macroeconomic analysis as well as to microeconomic analysis.ANS: D DIF: 1 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Supply and demandMSC: Definitional8. Which of the following statistics is usually regarded as the best single measure of a society’s eco-nomic well-being?a. the unemployment rateb. the inflation ratec. gross domestic productd. the trade deficitANS: C DIF: 1 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: Definitional9. GDPa. is used to monitor the performance of the overall economy but is not the single best measure ofa society’s economic well-being.b. is used to monitor the performance of the overall economy and is the single best measure of asociety’s economic well-being.c. is not used to monitor the performance of the overall economy but is the single best measure ofa society’s economic well-being.d. is not used to monitor the performance of the overall economy and is not the single bestmeasure of a society’s economic well-being.ANS: B DIF: 1 REF: 10-0 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: DefinitionalTHE ECONOMY'S INCOME AND EXPENDITURE1. Gross domestic product measuresa. income and expenditures.b. income but not expenditures.c. expenditures but not income.d. neither income nor expenditures.ANS: A DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: InterpretiveChapter 23 /Measuring a Nation's Income ❖ 32. Expenditures on a nation’s domestic productiona. are less than its domestic production.b. are equal to its domestic production.c. are greater than its domestic production.d. could be less than, equal to, or greater than its domestic production.ANS: B DIF: 1 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: Definitional3. Income generated by a nation’s domestic productiona. is less than its domestic production.b. is equal to its domestic production.c. is greater than its domestic production.d. could be less than, equal to, or greater than its domestic production.ANS: B DIF: 1 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: Definitional4. For an economy as a whole,a. wages must equal profit.b. consumption must equal saving.c. income must equal expenditure.d. the number of buyers must equal the number of sellers.ANS: C DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: Interpretive5. 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 thetotal expenditure on the economy’s output of goods and services.b. Money continuously flows from households to firms and then back to households, andGDP 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.ANS: D DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: Interpretive6. Because every transaction has a buyer and a seller,a. GDP is more closely associated with an economy’s income than it is with aneconomy’s expenditure.b. every transaction contributes equally to an economy’s income and to its expenditur e.c. the number of firms must be equal to the number of households in a simple circular-flow diagram.d. firms’ profits are necessarily zero in a simple circular-flow diagram.ANS: B DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Circular flowMSC: Interpretive4 ❖Chapter 23/Measuring a Nation's Income7. For an economy as a whole, income must equal expenditure becausea. the number of firms is equal to the number of households in an economy.b. individuals can only spend what they earn each period.c. every dollar of spending by some buyer is a dollar of income for some seller.d. every dollar of saving by some consumer is a dollar of spending by some otherconsumer.ANS: C DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Circular flowMSC: Interpretive8. If an economy’s GDP falls, then it must be the case that the economy’sa. income falls and saving rises.b. income and saving both fall.c. income falls and expenditure rises.d. income and expenditure both fall.ANS: D DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: Interpretive9. If an economy’s GDP rises, then it must be the case that the economy’sa. income rises and saving falls.b. income and saving both rise.c. income rises and expenditure falls.d. income and expenditure both rise.ANS: D DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: Interpretive10. 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 theunemployment rate of the economy’s labor force.b. Money continuously flows from households to government and then back tohouseholds, and GDP measures this flow of money.c. GDP is to a nation’s economy as household income is to a household.d. All of the above are correct.ANS: C DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: GDPMSC: Interpretive11. In a simple circular-flow diagram, total income and total expenditure area. never equal because total income always exceeds total expenditure.b. seldom equal because of the ongoing changes in an economy’s unemployment rat e.c. equal only when the government purchases no goods or services.d. always equal because every transaction has a buyer and a seller.ANS: D DIF: 2 REF: 10-1 NAT: AnalyticLOC: Understanding and applying economic models TOP: Circular flowMSC: InterpretiveChapter 23 /Measuring a Nation's Income ❖ 512. In a simple circular-flow diagram,a. households spend all of their income.b. all goods and services are bought by households.c. expenditures flow through the markets for goods and services, while income flowsthrough the markets for the factors of production.d. All of the above are correct.ANS: D DIF: 2 REF: 10-1 NAT: AnalyticLOC: Understanding and applying economic models TOP: Circular flowMSC: Interpretive13. In a simple circular-flow diagram, firms use the money they get from a sale toa. pay wages to workers.b. pay rent to landlords.c. pay profit to the firms’ owners.d. All of the above are correct.ANS: D DIF: 1 REF: 10-1 NAT: AnalyticLOC: Understanding and applying economic models TOP: Circular flowMSC: Definitional14. In a simple circular-flow diagram, households buy goods and services with the income theyget froma. wages.b. rents.c. profits.d. All of the above are correct.ANS: D DIF: 1 REF: 10-1 NAT: AnalyticLOC: Understanding and applying economic models TOP: Circular flowMSC: Definitional15. In the actual economy, householdsa. spend all of their income.b. divide their income among spending, taxes, and saving.c. buy all goods and services produced in the economy.d. Both (a) and (c) are correct.ANS: B DIF: 2 REF: 10-1 NAT: AnalyticLOC: Understanding and applying economic models TOP: Circular flowMSC: Interpretive16. Total income from the domestic production of final goods and services equalsa. only household expenditures for these goods.b. only household and business expenditures for these goods.c. only household and government expenditures for these goods.d. the expenditures for these goods whoever buys them.ANS: D DIF: 1 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Circular flowMSC: Definitional6 ❖Chapter 23/Measuring a Nation's Income17. In the actual economy, goods and services are purchased bya. households, but not firms or the government.b. households and firms, but not the government.c. households and the government, but not firms.d. households, firms, and the government.ANS: D DIF: 1 REF: 10-1 NAT: AnalyticLOC: Understanding and applying economic models TOP: Circular flowMSC: Interpretive18. According to the circular-flow diagram GDPa. can be computed as the total income paid by firms or as expenditures on final goodsand services.b. can be computed as the total income paid by firms, but not as expenditures on finalgoods and services.c. can be computed as expenditures on final goods and services, but not as the totalincome paid by firms.d. cannot be computed as either total income paid by firms or expenditures on final goodsand services.ANS: A DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Circular flowMSC: Definitional19. According to the circular-flow diagram GDPa. can be computed as either the revenue firms receive from the sales of goods andservices or the payments they make to factors of production.b. can be computed as the revenue firms receive from the sales of goods and services butnot as the payments they make to factors of production.c. can be computed as payments firms make to factors of production but not as revenuesthey receive from the sales of goods and services.d. cannot be computed as either the revenue firms receive or the payments they make tofactors of production.ANS: A DIF: 2 REF: 10-1 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Circular flowMSC: DefinitionalTHE MEASUREMENT OF GROSS DOMESTIC PRODUCT1. GDP is defined as thea. value of all goods and services produced within a country in a given period of time.b. value of all goods and services produced by the citizens of a country, regardless ofwhere they are living, in a given period of time.c. value of all final goods and services produced within a country in a given period oftime.d. value of all final goods and services produced by the citizens of a country, regardlessof where they are living, in a given period of time.ANS: C DIF: 1 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Domestic production MSC: DefinitionalChapter 23 /Measuring a Nation's Income ❖72. Which of the following is a way to compute GDP?a. add up the wages paid to all workersb. add up the quantities of all final goods and servicesc. add up the market values of all final goods and servicesd. add up the difference between the market values of all final goods and services andthen subtract the costs of producing those goods and servicesANS: C DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Market valueMSC: Interpretive3. In order to include many different goods and services in an aggregate measure, GDP is com-puted using, primarily,a. values of goods and services based on surveys of consumers.b. market prices.c. quantities purchased by a typical urban household.d. profits from producing goods and services.ANS: B DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Market valueMSC: Interpretive4. Gross domestic product adds together many different kinds of goods and services into a sin-gle measure of the value of economic activity. To do this, GDP makes use ofa. market prices.b. statistical estimates of the value of goods and services to consumers.c. prices based on the assumption that producers make no profits.d. the maximum amount consumers would be willing to pay.ANS: A DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Market valueMSC: Interpretive5. In computing GDP, market prices are used to value final goods and services becausea. market prices do not change much over time, so it is easy to make comparisonsbetween years.b. market prices reflect the values of goods and services.c. market prices reflect the quantity sold.d. None of the above is correct; market prices are not used in computing GDP.ANS: B DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Market valueMSC: Interpretive6. If the price of a Blu-Ray Disc player is three times the price of an MP3 player, then a Blue-Ray Disc player contributesa. more than three times as much to GDP as does a MP3 player.b. less than three times as much to GDP as does a MP3 player.c. exactly three times as much to GDP as does a MP3 player.d. None of the above is necessarily correct.ANS: C DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Market valueMSC: Applicative8 ❖Chapter 23/Measuring a Nation's Income7. Suppose that an economy produces 40,000 units of good A which sells at $4 a unit and20,000 units of good B which sells at $5 per unit. Production of good A contributesa. 2 times as much to GDP as the production of good B.b. 8/5 times as much to GDP as the production of good B.c. 5/4 times as much to GDP as the production of good B.d. 4/5 times as much to GDP as production of good B.ANS: B DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Market value MSC: Applicative8. Suppose that an economy produces 30,000 units of good A which sells at $3 a unit and60,000 units of good B which sells at $2 per unit. Production of good A contributesa. 1/2 times as much to GDP as the production of good B.b. 3/2 times as much to GDP as the production of good B.c. 3/4 times as much to GDP as the production of good B.d. 4/3 times as much to GDP as production of good B.ANS: C DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Market value MSC: Applicative9. Which of the following is included in GDP?a. the market value of rental housing services, but not the market value of owner-occupied housing services.b. the market value of owner-occupied housing services, but not the market value ofrental housing servicesc. both the market value of rental housing services and the market value of owner-occupied housing servicesd. neither the market value of owner-occupied housing services nor the market value ofrental housing services.ANS: C DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Housing services MSC: Definitional10. The value of the housing services provided by the economy's owner-occupied houses isa. included in GDP, and the estimated rental values of the houses are used to place avalue on these housing services.b. included in GDP, and the actual mortgage payments made on the houses are used toestimate the value of these rental services.c. excluded from GDP since these services are not sold in any market.d. excluded from GDP since the value of these housing services cannot be estimated withany degree of precision.ANS: A DIF: 2 REF: 10-2 NAT: AnalyticLOC: The study of economics and definitions in economics TOP: Housing services MSC: Definitional11. Suppose an apartment complex converts to a condominium, so that the former renters arenow owners of their housing units. Suppose further that a current estimate of the value of。