MACROECONOMICS: CHAPTER TEN EXAM

Student: ___________________________________________
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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1. In order to include many different goods and services in an aggregate measure, GDP is computed 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.
2. Estimates of the values of which of the following non-market goods or services are included in GDP?
a. the value of unpaid housework
b. the value of services provided by major household appliances purchased in a previous
period
c. the estimated rental value of owner-occupied homes
d. All of the above are included in GDP.
3. Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of
the following is correct? The value of changing the oil is
a. included in GDP whether Susan pays Speedy Lube to change it or changes it herself.
b. included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself.
c. included in GDP if Susan changes it herself, but not if she pays Speedy Lube to change it.
d. not included in GDP whether Susan pays Speedy lube to change it or she changes it
herself.
4. A farmer sells $50,000 of apples to individuals who take them home to eat and $75,000 of apples to a
company that uses them all to produce cider. How much of the farmers sales will be included as apples in
GDP?
a. $0
b. $50,000
c. $75,000
d. $125,000
5. Grapes are considered intermediate goods
a. whether the purchaser uses them to make wine to sell or eats them.
b. if the purchaser uses them to make wine to sell others but not if the purchaser eats them.
c. if the purchaser eats them, but not if the purchaser uses to them to make wine to sell.
d. None of the above is correct.
6. Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc.,
which produces and sells leather furniture. With each $1,000 of leather that it buys from Cowhide, Inc.,
Couches, Inc. produces a couch and sells it for $3,000. Neither firm had any inventory at the beginning of
2009. During that year, Cowhide produced enough leather for 20 couches. Couches, Inc. bought 80% of that
leather for $16,000 and promised to buy the remaining 20% for $4,000 in 2010. Couches, Inc. produced 16
couches during 2009 and sold each one during that year for $3,000. What was the economy's GDP for 2009?
a. $48,000
b. $52,000
c. $64,000

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d. $68,000
In early2010 Molly paid $200,000 for a house built in 2000. She spent $30,000 on new materials to remodel
the house. Although Molly lived in the house after she remodeled it, its rental value rose. Which of the
following contributed to real GDP in 2010?
a. the price of the house, the cost of remodeling materials, the increase in rental value
b. the price of the house and the cost of remodeling materials, but not the increase in rental
value
c. the costs of the remodeling materials and the increase in rent, but not the price of the
house
d. None of the above are correct.
Sally purchases a classic 1964 car she saw for sale on someones lawn. She then purchases some new parts
and spends 120 hours refurbishing the car which she keeps. Which of the following is included in GDP?
a. the amount she paid to buy the car
b. the amount she paid to buy new parts
c. the value of her time repairing the car
d. All of the above are included.
Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the
manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for
$17,000. By how much did these transactions contribute to U.S. GDP for the year?
a. $18,000
b. $22,000
c. $39,000
d. $57,000
Michigan Tea Company sold $15 million worth of tea it produced. In producing this tea it purchased $5
million dollars worth of ingredients from foreign countries and paid workers who reside in Canada but
commute to the U.S. $1 million. How much did these transactions add to U.S. GDP?
a. $21 million
b. $15 million
c. $10 million
d. $9 million
Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced
in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in
sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality
Motors inventory. The transactions just described contribute how much to U.S. GDP for 2010?
a. $17 million
b. $21 million
c. $26 million
d. $30 million
U.S. GDP and U.S. GNP are related as follows:
a. GNP = GDP + Value of exported goods - Value of imported goods.
b. GNP = GDP - Value of exported goods + Value of imported goods.
c. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens
abroad.
d. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens
abroad.
How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)?
a. GNP = GDP - losses from depreciation
b. GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned
in the U.S.

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c. GNP = GDP + transfer payments to households + - indirect sales taxes

d. GNP = GDP - depreciation - retained earnings
Foreign citizens earn more income in Ireland than Irish citizens earn in foreign countries.
a. Irelands net factor payments from abroad are positive, and its GDP is larger than its GNP.
b. Irelands net factor payments from abroad are positive, and its GNP is larger than its GDP.
c. Irelands net factor payments from abroad are negative, and its GDP is larger than its GNP.
d. Irelands net factor payments from abroad are negative, and its GNP is larger than its GDP.
The residents of country A earn $500 million of income from abroad. Residents of other countries earn $200
million in country A. These earnings are accounted for in country As
a. GNP which is larger than GDP in country A.
b. GNP which is smaller than GDP in country A.
c. GDP which is larger than GNP in country A.
d. GDP which is smaller than GNP in country A.
In the national income accounts, depreciation is called
a. "consumption of fixed capital."
b. "negative investment."
c. "diminished value."
d. "loss due to wear."
How is net national product (NNP) calculated?
a. Saving is added to the total income of a nations citizens.
b. Saving is added to the total income earned within a nation.
c. Depreciation losses are subtracted from the total income of a nations citizens.
d. Depreciation losses are subtracted from the total income earned within a nation.
Retained earnings is income that
a. households retain after paying taxes.
b. businesses retain after paying taxes.
c. corporations have earned but have not used to invest in plant, equipment, and inventories.
d. corporations have earned but have not paid out to their owners.
Table 23-1
The table below contains data for Bahkan for the year 2010.
GDP
Income earned by citizens abroad
Income foreigners earn here
Losses from depreciation
Indirect business taxes
Statistical discrepancy
Retained earnings
Corporate income taxes
Social insurance contributions
Interest paid to households by government
Transfer payments to households from government
Personal taxes
Nontax payments to government

$110
$5
$15
$4
$6
$0
$5
$6
$10
$5
$15
$30
$5

____ 19. Refer to Table 23-1. Gross national product for Bahkan in 2010 is
a. $95.

b. $100.
c. $110.
d. $115.
____ 20. Refer to Table 23-1. Net national product for Bahkan in 2010 is
a. $96
b. $104
c. $106
d. $116