Econ Section 2 Exam Review

Which of the following would be included in this year's GDP?

• the value of a used car, at its sale price

• the value of a new domestic automobile, at its sale price

• a sale of Microsoft stock from one individual to another

• the face value of a life insurance policy paid to a woman at the death of her husband

Which of the following is GDP designed to measure?

Group of answer choices

• the total market value of goods and services produced domestically during the year

• changes in the cost of purchasing the typical consumer market basket of goods from one year to another

• the total size of the domestic underground economy

• the standard of living of the average citizen

A real estate salesperson sells a house in 2011 that was built in 1994. How does this transaction get counted in the GDP statistics?

• The price of the house and the real estate salesperson's commission are both included in 2011's GDP.

• Neither the price of the house or the commission is included in 2011's GDP.

• The real estate salesperson's commission but not the price of the house is included in 2011's GDP.

• The price of the house would be included in both 1994's GDP and the GDP for 2011.

When the expenditure approach is used to measure GDP, the major components of GDP are

• consumption, investment, indirect business taxes, and depreciation.

• employee compensation, rents, interest, self-employment income, and corporate profits.

• employee compensation, corporate profits, depreciation, and indirect business taxes.

• consumption, investment, government consumption and gross investment, and net exports.

If you wanted to measure whether the output of an economy was increasing or decreasing across time periods, you would use the real GDP data rather than the nominal GDP data because

• exports are excluded from real GDP but not nominal.

• real GDP incorporates the impact of federal budget deficits and surpluses; nominal GDP does not.

• real GDP reflects the impact of transfer payments on the economy, but nominal GDP does not.

• real GDP adjusts for changes in the general level of prices, but nominal GDP does not.

The GDP deflator is designed to

• adjust nominal GDP for changes in the unemployment rate.

• adjust nominal GDP so as to include the problem of externalities.

• adjust nominal GDP for changes in the price level.

• calculate changes in the price of food and other consumer goods.

Suppose that the nominal value of GDP increased by approximately 2 percent during a given year, but real GDP decreased by 3 percent. Which of the following best explains these events?

• The money supply decreased by approximately 5 percent.

• Prices fell by approximately 5 percent.

• Prices increased by approximately 5 percent.

• The real productive capacity of the economy increased by approximately 5 percent.

If national income accountants fail to make an adequate adjustment for increases in the quality of goods and services over time,

• real GDP will overstate the growth rate of real output.

• the GDP deflator will underestimate inflation.

• the GDP deflator will overestimate inflation.

• real GDP will overstate the growth of real output, and the GDP deflator will understate inflation.

The primary value of real GDP is its ability to measure year to year changes in

• real output.

• income inequality.

• real social welfare.

• the general level of prices.

Last year your job at the university cafeteria paid you $9 an hour and the price of a ten-minute long distance call to your girlfriend in California was $4. This year your cafeteria job pays $9.90 per hour and the ten-minute phone call now costs $4.10. You are clearly

• worse off because of inflation.

• worse off because the phone call is now relatively more expensive.

• better off because your wage rate went up.

• 
  better off because the phone call now costs less work.