Depreciation refers to a decrease in the value of a good caused by

a. an increase in the price level.

b. a decrease in the price level.
c. "wear and tear" of capital goods over time.
d. the depreciation allowance.
e. a decrease in purchasing power.

Sales tax is an example of an indirect business tax.

a. TRUE
b. FALSE

Refer to Exhibit 7-5. What was Country Z�s economic growth rate between year 1 and year 2?
a. 0.073
b. 0.083
c. 0.053
d. 0.068

Disposable income equals national income minus personal taxes.

a. TRUE
b. FALSE

Which of the following illustrates double counting?

a. The total market value of the steel used to produce a car and the total market value of the
car itself are summed.
b. The total market value of tennis rackets and the total market value of tennis balls are
summed.
c. The total market value of picture frames and the total market value of camera film are
summed.
d. The total market value of eyeglasses and the total market value of carpet are summed.
e. b and c

The GDP of country A may be higher than that of country B because the workers in country A
work more hours per week than workers in country B.
a. TRUE
b. FALSE

Refer to Exhibit 7-1. What is the value of personal income?

a. 4252
b. 4388
c. 5072
d. 3996
e. 4207

An example of income received but not earned is

a. government transfer payments.
b. undistributed profits.
 c. compensation of employees.
d. rental income.
e. a and c

If Real GDP was $8,742 billion in year 2 and it had been $8,509 billion in year 1, what was the
approximate economic growth rate during this time period?
a. 9.73 percent
b. 2.67 percent
c. 3.58 percent
d. 2.74 percent

Suppose that inventory investment is $20 billion and (total) investment is $680 billion. What
does purchases of newly produced capital goods equal?
a. $715 billion
b. $785 billion
c. $750 billion
d. $35 billion
e. There is not enough information to answer this question.

Refer to Exhibit 7-3. Investment is equal to

a. 850
b. 1250
c. 200
d. 2200
e. 1050

Which of the following statements is false?

a. The market value of all nonmarket goods is omitted from GDP.
b. The sale of used goods is omitted from GDP.
c. The market value of a person mowing his or her own lawn is omitted from GDP.
d. If a good is produced but not sold, it is included in GDP.

Some economists argue that GDP overstates overall economic welfare because it does not
include the impact of bads such as pollution.
a. TRUE
b. FALSE

In the survey of Harvard University students noted in the text, the majority of students chose to
a. be poorer in absolute terms, as long as they could be richer in relative terms.
b. be richer in absolute terms, even though they would be poorer in relative terms.
c. move into a poorer neighborhood even if they were relatively rich.
d. move into a richer neighborhood even if they were relatively poor.

You have data for compensation of employees, proprietors' income, rental income, and net
interest. Can you compute national income?
a. Yes.
 b. No, since data on indirect business taxes are missing.
c. No, since data on corporate profits is missing.
d. No, since data on the capital consumption allowance is missing.
e. No, since net interest has not been adjusted for profits.

An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2,
and $3, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is
Real GDP?
a. 180
b. 200
c. 140
d. 240
e. none of the above

Suppose there are five goods in the economy, A-E. The current-year quantity of each is 10A,
20B, 30C, 40D, and 50E. Current-year prices are $1 for each unit of A, $2 for each unit of B, $3
for each unit of C, $4 for each unit of D, and $5 for each unit of E. Base-year prices are $1 for
each good. Real GDP in the current year equals _________ and GDP equals _________.
a. $550; $150
b. $130; $530
c. $150; $550
d. $530; $130
e. none of the above

Is it possible for a country with a relatively large GDP to have a relatively small per-capita GDP?
a. Yes, since the country with a relatively large GDP could have a relatively large
population.
b. No, since countries with a relatively large GDP (such as the United States and Japan) also
have relatively high per-capita GDP.
c. Yes, but only under the condition that the country "produces" relatively more "bads" than
other countries.
d. Yes, since government transfer payments may be exorbitantly high in the country with
the relatively high GDP.
e. There is not enough information to answer this question.

Which of the following goods is an intermediate good?

a. lettuce that a restaurant buys to put on sandwiches
b. tires that a car company buys to put on the cars it produces
c. a television set that Chi-Mai buys to put in her college dorm room
d. a and b
e. b and c

Which of the following items is a final good?

a. mustard in a deli
b. tin purchased by a can company
c. a sweater purchased by someone in a department store
 d. a and b
e. a, b, and c

In 1950, the country with the highest per capita GDP was
a. Switzerland.
b. New Zealand.
c. the United States.
d. Venezuela.
e. the Netherlands.

In the business cycle, what is the difference between the recovery phase and the expansion
phase?
a. The expansion phase occurs in the rising portion of the business cycle, while the recovery
phase occurs in the falling portion of the business cycle.
b. The expansion phase occurs in the falling portion of the business cycle, while the
recovery phase occurs in the rising portion of the business cycle.
c. The expansion phase is the period when Real GDP increases beyond the recovery phase.
d. The expansion phase must always preceed the recovery phase.

To macroeconomists, investment is mainly the purchases of goods and services

a. by businesses.
b. to hold as wealth, such as gold coins or art.
c. to hold as wealth, such as stocks and bonds.
d. in the period previous to the period being studied.

Which of the following would not be included in the measurement of GDP?

a. a bill from a car mechanic
b. wages of a card dealer working in a Las Vegas casino
c. commissions of a stockbroker
d. the increased value of shares of stock
e. c and d

Suppose that consumption spending is $4,200 billion, spending on durable goods is $1,200
billion, and spending on services is $2,000 billion. What does spending on nondurable goods
equal?
a. $7,200 billion
b. $1,000 billion
c. $2,200 billion
d. $3,200 billion
e. There is not enough information to answer this question.

Gross Domestic Product (GDP) is the total market value of all

a. final goods and services produced annually within a country's borders.
b. final and intermediate goods and services produced annually within a country's borders.
c. intermediate goods and services produced annually within a country's borders.
d. final goods and services produced every month within a country's borders.
Net exports must always be a positive amount.
a. TRUE
b. FALSE

Macroeconomists define consumption as

a. purchases by the business sector.
b. wearing away and breakdown of capital goods.
c. the difference between imports and exports.
d. purchases by the household sector.

Investment is equal to all purchases of newly produced capital goods

a. minus changes in business inventories.
b. plus fixed investment minus inventory investment.
c. plus changes in business inventories.
d. plus changes in business inventories plus purchases of new residential housing.

Refer to Exhibit 7-5. What was Country Z�s economic growth rate between year 3 and year 4?
a. 0.061
b. 0.023
c. 0.03
d. 0.182