Question 1

Which of the following best describes the difference between microeconomics and macroeconomics?

Accepted Answer

Microeconomics studies how households and firms make choices, while macroeconomics studies the economy as a whole, including topics such as inflation and unemployment.

Question 2

Which of the following transactions would be included in the calculation of a country's GDP for the current year?

Accepted Answer

A new house built and sold during the year.

Question 3

Suppose a U.S. company produces cars in Mexico and sells them in the United States. How is this production counted in GDP calculations?

Accepted Answer

It is included in Mexico's GDP because the production occurs within Mexico's borders.

Question 4

Which of the following best explains why only final goods and services are counted in GDP?

Accepted Answer

To avoid double counting the value of intermediate goods.

Question 5

If a country’s GDP is calculated using the expenditure approach, which of the following equations is correct?

Accepted Answer

$$Y = C + I + G + NX$$

Question 6

Which of the following is NOT included in the 'Investment' component of GDP?

Accepted Answer

Purchases of stocks and bonds by households.

Question 7

A U.S. consumer buys a television produced in South Korea. How does this transaction affect U.S. GDP?

Accepted Answer

It has no effect on U.S. GDP because imports are subtracted from exports in the calculation of net exports.

Question 8

Which of the following is an example of a government purchase included in GDP?

Accepted Answer

Salaries paid to public school teachers.

Question 9

Suppose the following data for a country in a given year: Consumption = $$500$$, Investment = $$200$$, Government Purchases = $$300$$, Exports = $$100$$, Imports = $$150. $$What is the GDP?

Accepted Answer

$$500 + 200 + 300 + (100 - 150) = 950$$

Question 10

Which of the following is a shortcoming of using GDP as a measure of total production?

Accepted Answer

GDP excludes the value of underground economic activity.

Question 11

If nominal GDP in 2021 is $$20,000$$ and the GDP deflator is $$125$$, what is real GDP for 2021? (Use the formula $$	ext{Real GDP} = \frac{	ext{Nominal GDP}}{	ext{GDP Deflator}} 	imes 100)$$

Accepted Answer

$$16,000$$

Question 12

Which of the following would be considered an intermediate good?

Accepted Answer

Flour purchased by a bakery to make bread.

Question 13

Why might GDP per capita not accurately reflect the standard of living in a country?

Accepted Answer

It does not include the value of leisure, environmental quality, or income distribution.

Question 14

Which of the following best describes the 'value added' approach to measuring GDP?

Accepted Answer

Summing the additional market value a firm adds to a product at each stage of production.

Question 15

If a country has a large informal sector, how might this affect the accuracy of its GDP measurement?

Accepted Answer

GDP will understate the country's total production.

Question 16

Which of the following is an example of a durable good included in the consumption component of GDP?

Accepted Answer

A new car purchased by a household.

Question 17

Suppose a country’s exports are $$300$$ and imports are $$400. $$What is the value of net exports?

Accepted Answer

$$-100$$

Question 18

Which of the following would NOT be counted as part of government purchases in GDP?

Accepted Answer

The payment of interest on government debt.

Question 19

If the government increases its purchases of goods and services, all else equal, what is the likely short-run effect on GDP?

Accepted Answer

GDP will increase.

Question 20

Which of the following is a reason why GDP might overstate the growth of actual production in a country over time?

Accepted Answer

GDP does not account for the reduction in leisure time or environmental quality.

Measuring Economic Activity: GDP and Its Components

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