10.

The tenn "fina! goods and services" refers to: a)'- goods and b) goods and c) goods and d) the excess f\nswer.

serviees services services ofU.S.

.

wrueh are unsold and therefore added to inventones. whose value has been adjusted for changes in the pnce leve!. purchased by ultimate users, as opposed to resale ot further processing. exports over U.S. imports.

\ 1. lf mtermedlate goods and services were included in GDP:

a)

the GDP would then have to bedef1ated for changes in the pnce leve!.

b) Dominal GDP would exceed real GDP. c) the GDP would be overstated. d) the GDP would be understated. Answer: '

\2. Which of the following is a [mal good or service? a) diesel fuel bought for a delivery trnek b) fertilizer purehased by a farm supplier c) a haireut d) Chevrolet windows purchased by a General Motorsassembly plant f\nswer:

13. \Vhich of the fol1owing is an intennediate good? a) the purehase of gasoline for a ski trip to Colorado b) the purehase, of a pizza by a college student. c) the purchase of'baseball bats by a profes?ional baseball team. d) the purehase ofjogging shoes by a professor Answer.

'

,\

T(1m !\tuc tlrows lomatocs tor horne consurnptlon. This activity i:-;: (t) cxc\uJcJ from GDP in orJer to avoid Joub\c counting. bJ excludcd from GDP because an interm'ediate good is involvcd. c) productive but is excluded from GDP because no market transaction di included in GDP because it reflects production. Answer

occurs.

""

\5.

I

CJDP

includes:

aj neither intermediate nor Enal goods. b) both intermediate and flDal goods. Answer: , lC). GDP

a) bj

c) intermediate, but not fínal, goods. d) final, but not intennediate, goods.

- .

can be calculated by sumrning: consumption, investment, govemment purchases, exports, and imports. investment, govern.pent purchases, consumption, and net exports.

c) consumption,investment, wages, and rents.

.

ci) consumption, investment, government purchases, and imports. Answer: 21.

22.

Which of the following do nationa1 income accountants consideli to be "investment"? a) the purchase of an automobile for private, nonbusiness use c) tbe purchase of corporate bonds b) tbe purchase of a new house d) tbe purchase of gold coins Answer: Gi5p is equal to:

a) C+Ig+G+X

n"

b) C+Ig+G-X

n- c) C+ln+G+X

Answer:-

23.

n- d) C+ln+G-X ',,-_.

EZ;~~mists defme investment to incl~de: a) any increase in business inv~ntones. b) the addition of cash to a savmgs accolli1L c) the purchase of common or prefen-ed stock. le an automobile or a refrigerator. d) the purchas~ of any durable good, for examp , A ..

~_.

no

I

.

I

I I I I

i I

I.

l"1CL CJ\.\JUlL::> ale.

a) that portion of consunlption and investment goods sent to otber countries. b) exports plus imports. c) exports less imports. d) imports less exports. Answer:

Gross investment refers to:

"

a) pnvate investment minus public investment. b) net investment plus replacement Íhvestment. c) net investment after it has been lIinflated" for changes in tbe price leve1. d) net investment plus net exports. Answer:

. Net exports are negative when: a) a nation's imports exceed its exports. b) the economy's stock of capital goods is dec1ining. Answer:

. Whichof the following is not economic investment?

c) depreciation exceeds domestic investrnent. d) a nation's exports exceed its imports.

.

.

a) U1epurchase of a drill press by the Ajax Manufacturing Company b) the purchase af 100 shares at 1\T&T by a retu-ed business executive c) construction uf Q suburban housing project .

d)

the pi1ing up nf inventorics on :1grncer's shelf

3. Nominal GDP is: a)

the sum of all monetary transactions which occur in the economy in a year.

b) c)

the sum of a11monetary transactions involving [mal goods and services which occur in the economy in a year. the amOl..U1t of production which occurs when the economy 1Soperating at full employment.

d) money GDP adjusted for inflation.

.

Answer:

)4

The term "real ODP" refers 10: a)

the value of the domestic output after adjustments have been made for environmental po11ution and changes in the distrihutit 111 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 leve!. d) GDP data which have been adjusted for changes in the price Jeve!. . Answer:

95.

Real GDP measures: a) CUITentoutput at currenl prices. b) CUITentoutput at hase ycar priccs. Answer: h

c) d)

base year output at current prices. base ycar output at current cxchangc ra\cs

-. 00. li real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is: a) 100. b) 200. c) 240. d) 300. . Answer:

.01. Suppose a nation's 1998 nominal GDP was $972 billian and the general price index was 90. ln arder to make the 1998 GDP comparable with the base year GDP tbe 1998 GDP must be: a) adjusted downward to $678 billion.c) inflated to $1080 billion. b) deDated to $896 billion. d) . def1atedto $1080 billion. Answer:

Consumption

t::

.2 ~

0E ::J

rJ) t::

A.'

o

--JB I I

U

o

1;;)

V

~

"~c"O

G 9

0

H

,

I

:

I I I

E

F

Ineome

Refer to the above diagram. The average propensity to consume is 1 at point:

a) F. b) A. Answer:

c) D.

d) B.

R~ferIp tlie above diagram. The marginal propensity to consume is equal to: a) AE/QE. b) CF/CD. c) CB/AB. d) CD/CF. e) CB/BF. ; Answer:j

..

Refer to the above diagram. At income level F the volume of saving is: a) BD. b) AB. c) CF-BF. d) CD. Answer:

Referto the above diagram. Consumption will be equa!to inco~e at a) an 1p.comeof E. b) an mcome of F. e)- pomt C. d) pomt D. Answer: .-

Disposable mcome $200 225

5Vr\ 275 300 ...,

L

Consumption $205 225 ...,AC L'+.J

265 285

C2i)R~fer to tlÍe above data. Tbe marginal propensity to consume a) .25 b) .75. c) .20. d) .80. Answer:

is:

-

-

---

-

~

-

C2

S~)

c: b

...... ...:.;.

a.

C1

E

::J CI) c:

o u

o Disposable I'Rcome Suppose an ecanamy's cansumptian schedule slufts :fram C 1, ta C 2 as shawn in the abave diagrar:

a) MPC has increased but its APC at each incame level is unchanged. b) APC at each incame level is increased but its lvfPCis ,unchanged. c) MPC and APC at each incame level have,bath increased. d) MPC and APC at each incame level have bath decreased. Answer:

~ Di;s~ving ac~urs where:

. mcame exceeds cansumpt:Ion.' b) savllJ,crexceeds cansumption. ,

c) consumption exceedsincan

a)

Answer:l

d) saving exceeds incame.

'

b) Which af the fallawing relations is not correct? a) 1 - MPC= MPS b) APS + APC = 1 c) lvfPS= MPC+ 1 d) MPC + lvfPS = 1

Answer:

~

"

.

The saving schedule is drawn an the assumptian that as incame increases: a) b) c)

saving will dec1ine ahsO'~tl'tdyand 3;Sa percentage af incame. saving will increase (Ebsohltely,but remain canstant as a percentage af incame. saving will increase absoltutely, but deeline as a percentage of Í11come.

.

d) saving will increase abso-lutelyand as a percentage af income. Answer:

~,

.

'

At the point where the consumption schedule intersects the 45-degree line: a) the MPC equals 1. b) tbe APC is zera. c) saving equals incame. d) saving is zero. Answer:

'

'

'

(0 CA

-

r:::

o

o.. E

Cs

::::J tn r:::

o

U

o

Dispos.a.ble Income

The above diagram shows consumption schedules for economies A and B. We can say that the: a) :tvíPCis greater in B than in A. c) lv1PSiS.smaller in B than in A. b) APC at any given income level is greater in B than in A. d) 1v1PCis greater in A than in B. Answer: d

~ "

ff~45.)

At the point where the consumption schedule in!ersects the 45-degree line: a) the :tvíPCis 1.00. b) the APC is 1.00. c) saving is equal to consumption. Answer:

H~lIy's breok-even level or income is $1O,OOO-;d her ~C a)

consumptton spendmg wl11be $14,500.

b) consumption spending wil1be . I . .$15,500.

is 0.75. Ifher octual disposa~le income is $16,000, her level , .

.

.

d) the economy is in equilibrlum.

c) d)

consumptlOn spendmg w1l1be $13,000. saving wi11be $2,500.

I .

Consider the given aggregate consumption schedu1e. Incorne (in bi11ions)

Consumption (in bil1ions)

Savings (in bi11ions)

$600

$600

o

700

660

40

800

720

80

900

780

120

Comment on the MPC, MPS, APC, and APS in this situation.

Solution: A study of the table shows that each time income goes up $100, consumption goes up $60 and savings increase by $40. Therefore, both MPC and MPS are constant,

where

MPC

=

f:.C/6.Y

=

60/100

= 0.6 =

MPS

and

6.S/6.Y

= 40/100 = 0.4 On the other hand, APS and APC are different point on the schedule. At income

=

600,

APC

=

600/600

= 1, and

At

=

700,

APC

=

660/700

= 0.9428, and

income

APS = (1 -

At income

At

=

=

.9428)

income

APS

=

=

6~0

O.

0.0572.

= 800, APC = 720/800 = 0.9, and

=

APS = (1 - 0.9) APS

at each

=

(1 - .866)

0.1.

900,

=

APC

=

780/900

=

0.866

and

0.133.

Thus, it is shown that, although MPS and MPC remain constant, APS becomes larger as income increases and APC becomes smaller.