Test National Income Accounting Test

GDP, Unemployment, Inflation, & Business Cycles

*Do not make any marks on this test.
1. A nations Gross Domestic Product(GDP):
a.
is the dollar value of the total output produced within the borders of the nation.
b. is always some amount less than its GDP.
c. is the dollar value of the total output produced by its citizens, regardless of where they are living.
2. Which of the following is included in GDP?
a. used autos purchased by consumers
b. unemployment payments made to unemployed

c. $2,000 purchase of Ford stock

d. purchase an iPod Video at the Apple Store

3. In January, 2005, Chrysler produced a $40,000 Chrysler 300 that

was delivered to Delray Chrysler in February 2005. This auto was sold
to your economics teacher in February of 2006. This auto would be
counted as:
a.
b.
c.
d.

investment in 2005 and consumption in 2006.

consumption in 2005 and investment in 2006.
investment in 2005 and disinvestment in 2006.
disinvestment in 2005 and investment in 2006.

4. National income accounts can avoid double counting by:

a.
b.
c.
d.

only counting intermediate goods and Fuzzy Wuzzys.

only counting final goods.
counting both intermediate and final goods.
counting only components of final goods.

a.
b.
c.
d.

consumer goods bought only on weekdays.

goods and services purchased by the ultimate users, as opposed to resale or further processing.

5. The term final goods and services refers to:

The excess of American exports over American imports.

components of the final good.

6. Which of the following is a final good or service?

a. flounder bought by Red Lobster
b. naked chickens bought by KFC

c. potatoes bought by McDonalds for fries

d. payment for a haircut

7. To the economist, which is not considered to be

investment(Ig)?
a.
b.
c.
d.

construction of a new factory

additions to inventories resulting from unsold cars
the building of an apartment complex
purchase of 10,000 shares of Dell stock

8. The largest component of GDP is:

a. net exports

b. consumption

c. government purchases

d. gross investment

9. If depreciation exceeds gross private domestic

investment, then:

a.
b.
c.
d.

net investment is positive.

the economy is importing more than it exports.
net investment is negative.

the economy is exporting more than it imports.

12. If in a given year Ig was $120 billion and In was a positive $65
billion, then in that year the countrys capital stock[national factory]:
a. decreased by $55 billion.

b. increased by $55 billion.

c. increased by $65 billion.

13. Consumption of fixed capital [depreciation] can be determined by:

a. adding indirect business taxes to NDP.
b. adding transfer payments to DI.
c. subtracting In from GDP.
d. subtracting In from Ig.
Answer questions 14-18 on the basis of the following data. Figures are in billions.
Personal Taxes
Social Security Contributions
Indirect business taxes
Corporate income taxes
Transfer payments
U.S. exports
U.S. imports

GDP is:
15. NDP is:
16. NI is:
17. PI is:
18. DI is:
14.

$40
$15
$20
$40
$22
$24
$22

Net private domestic investment

$50
Personal consumption expenditures
$255
Gross private domestic investment
$75
Undistributed corporate profits
$35
Government purchases
$95
Depreciation
$25
Net foreign factor income earned in the U.S. -$10

a. $390

b. $417

c. $427

d. $492

e. $512

a. $397

b. $402

c. $392

d. $467

e. $487

a. $364

b. $372

c. $447

d. $362

e. $367

a. $299

b. $304

c. $408

d. $437

e. $428

a. $259

b. $329

c. $264

d. $402

e. $236

19. Nominal GDP during one year is $300 and the price index is 120. Real GDP is:
a. $200
b. $325
c. $275
d. $300
e. $250
20. Which of the following best defines NI (National Income)?
a. income received by households located only in the U.S.
b. the before tax income received by households.
c. all incomes earned by American resource suppliers(here & abroad) for their
current
contributions to production.
21. If CPI falls from 150 to 100 during a particular period:
a. deflation of about 33% has occurred.
b. inflation of about 50% has occurred.
c. inflation of about 33% has occurred.
d. deflation of about 50% has occurred.

22. The term real GDP refers to:

a. the value of the domestic output after adjustments have been made
for environmental
pollution and changes in the distribution 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 level.
d. GDP data which have been adjusted for changes in the price level[measures
output].

23. Nominal GDP during a particular year is $280 and the GDP price deflator is 175.
Therefore real GDP is:
a. $210

b. $175

c. $190

2000

d. $160

Time

24. The base year[where nominal and real GDP=100] used in determining the price
indexes for the economy above:
a. cannot be determined from the information given.
b. is some year before 2000.
c. is more recent than 2000.

d. is 2000.

25. If the CPI falls from 150 to 139, the economy has experienced:
a. inflation of 6.66%.
b. deflation of 7.0%
c. deflation of 6%.
D. deflation of 7.3%.

26. During a serious recession we would expect output to fall the most in:
a. the soft drink industry.
b. the auto industry

c. agriculture.
d. tobacco industry

27. The phase of the business cycle where real domestic output(GDP) is at a
minimum is called:
a. the peak
b. a recession
c. a trough
d. the pits

28. The production of durable goods is more variable than the production
of non-durable goods because:
a. durable goods purchases are non-postponable & the producers of durables are
competitive.
b. durable goods purchases are postponable and producers of durables are competitive.
c. non-durables purchases are postponable & the producers of non-durables are competitive.
d. durable goods purchases are postponable & producers of durables have monopoly power.

29. The U.S.s economy is considered to be at full employment when:

a. 10-20% of the labor force is unemployed.
b. 90% of the total population is employed.
c. 90% of the labor force is employed.
d. about 4-6% of the labor force is unemployed.
30. After graduating from college, Kim is interviewing school districts for a job
teaching economics. Kim presently is:
a. cyclically unemployed.
b. frictionally unemployed.

c. structurally unemployed.
d. not a member of the labor force.

31. The labor force includes:

a. employed workers and persons who are officially unemployed[looking for
a job].
b. employed workers, but excludes persons who are officially unemployed.
c. full-time workers, but excludes part-time workers.
32. Econnie Nomics works in her own home as a full time homemaker.
Officially, Econnie is:
a. unemployed.
b. employed.
c. in the labor force.
d. not in the labor force.
33. If the unemployment rate is 9% & the natural rate of unemployment
is 6%, then the:
a. frictional unemployment rate is 6%
b. cyclical unemployment rate and the frictional unemployment rate together are
6%.
c. cyclical unemployment rate is 3%.

34. The presence of discouraged workers:

a. increases the size of the labor force but does not affect the
unemployment rate.
b. causes the official unemployment rate to understate the amount of
unemployment.
c. reduces the size of the labor force, but does not affect the unemployment rate.

35. Suppose there are 6 million unemployed workers seeking jobs . Over time,
3 million of them become discouraged and quit looking for work .
As a result, the official unemployment rate would:
a. increase in the short run but eventually decline.

b. decline.

c. increase.

d. be unchanged.

36. A medical school graduate searching for a job as a brain surgeon

would best be classified as:
a. not officially a member of the labor force.
b. a part of frictional unemployment.
c. a part of cyclical unemployment.
d. part of structural unemployment.

8 million part-time workers & 90 million full-time

4 million of the part-time workers switch to full-time work.

37. Suppose there are

workers.

We can conclude that:

a. the official unemployment rate will decrease.
b. the official unemployment rate will increase.
c. the official unemployment rate will remain unchanged.
38. The

GDP Gap measures the:

a. difference between NDP and GDP.
b. amount by which potential GDP exceeds actual GDP[recessionary gap].
c. amount by which actual GDP exceeds potential GDP[inflationary gap]

39. If

actual GDP is less than potential GDP[recessionary gap]:

a. potential GDP will fall.
b. The price level will rise.
c. The actual unemployment rate will be higher than the natural unemployment
rate.
d. The actual unemployment rate will be lower than the natural unemployment rate.

40. Full-employment output[GDP] is also called:

a. zero-unemployment.

b. Okuns output.

C. potential output.

Answer the next questions(41-43) on the basis of the

following
info in a hypothetical economy for which Okuns law is
applicable:
Nominal GDP = $300 billion

PPC

Natural Rate = 6%
Actual rate of unemployment = 12%

41. The size of the GDP gap in % terms is:

a. 9%

b. 15%

c. 12%

12%

d. 18%

42. The amount of output

a. $12 billion.
b. $36 billion.

being foregone for this economy is:

c. $18 billion.

d. $15 billion.

43. If the unemployment rate declined to 6%[full

employment],
We can conclude that:
a. only structural unemployment remained.
b. the economys PPC shifted outward.
c. the economy had moved from a point inside its PPC to a point on the curve.

44. For every 1% that the actual unemployment rate exceeds the
natural rate, there is generated a 2% gap. This is a statement of:
a. Stratfords law.

B. Olsens law

c. Normans law

d. Okuns law

e. Grubbs law

45. If the CPI falls from 120 to 114 in a particular year, the economy has experienced:
a. inflation of 4%

b. inflation of 5%

c. deflation of 4%

d. deflation of 5%

46. The CPI was 140.3 in 2001 and 144.5 in 2002. Therefore, the rate of
inflation in 2002 was about:
a. 6.7%
b. 1.2%
c. 3.0%
d. 13.6%
47. If Reids annual real income rises by 8% each year, his annual real income
will double in about:
a.
b.
c.
d.

9 years
15 years
6 years
10 years

48. One year nominal GDP was $286 billion & the price index was 88. Then Real GDP was:
a.
b.
c.
d.

$252
$262
$308
$325

billion
billion
billion
billion

49. In 2005, Randys nominal income rose by 8% and the price level
(inflation) rose by 5%. We can conclude that Randys real income:
a.
b.
c.
d.

may have either increased or decreased.

increased by 13%
decreased by 3%
increased by 3%

50. So far this year, my favorite course has been [hasnt even been close].
a. Government

b. Physics

c. any math course

d.

Economics

Test 3 Answers
GDP & NIA
Ch 7&8
[50+]
1. A
2. D
3. C
4. B
5. B
6. D
7. D
8. B
9. C
10. B
11. D
12. C
13. D
14. C
15. B
16. B
17. B
18. C
19. E
20. C
21. A
22. D
23. D
24. C
25. D
26. B
27. C
28. D
29. D
30. B
31. A
32. D
33. C
34. B
35. B
36. B
37. C
38. B
39. C
40. C
41. C
42. B
43. C
44. D
45. D
46. C
47. A
48. D
49. D
50. D