Macroeconomics Practice Quiz Questions

2.

The “implicit price deflator of GDP” and the “consumer price index” (CPI) are exactly the same thing.

True
False

Correct Answer

A. False

Explanation

The statement is false because the "implicit price deflator of GDP" and the "consumer price index" (CPI) are not the same thing. While both measures are used to track inflation, they have different methodologies and purposes. The CPI focuses on changes in the prices of a basket of goods and services commonly purchased by consumers, while the implicit price deflator of GDP measures changes in the overall price level of all goods and services produced in an economy. Therefore, they provide different perspectives on inflation and are not interchangeable.

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3.

Only Currently Produced goods and services are counted in our GDP.

True
False

Correct Answer

A. True

Explanation

GDP, or Gross Domestic Product, is a measure of the total value of goods and services produced within a country's borders during a specific time period. It includes only currently produced goods and services because it aims to capture the economic activity that is currently contributing to the country's output and income. Goods and services that were produced in the past are not included in GDP as they do not reflect the current state of the economy. Therefore, the statement that only currently produced goods and services are counted in our GDP is true.

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4.

Which one of the following is not part of the Expenditure Approach of computing GDP.

Consumption
Investment
Government spending
Wages and salaries

Correct Answer

A. Wages and salaries

Explanation

Wages and salaries are not part of the Expenditure Approach of computing GDP. The Expenditure Approach calculates GDP by summing up the total consumption, investment, and government spending in an economy. Wages and salaries, on the other hand, are part of the Income Approach, which calculates GDP by summing up all the incomes earned by individuals and businesses. Therefore, wages and salaries are not directly included in the Expenditure Approach of computing GDP.

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5.

To change nominal values (current dollars) to real value (constant dollars) we must:

Multiply nominal values by a price index
Divide nominal values by a price index

Correct Answer

A. Divide nominal values by a price index

Explanation

To change nominal values (current dollars) to real value (constant dollars), we need to divide the nominal values by a price index. This is because a price index measures the average change in prices over time, and dividing the nominal values by the price index adjusts for inflation and gives us the real value of the goods or services in constant dollars.

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6.

In the U.S. system of accounting, which of the following measures of income will have the highest value?

NNP (Net National Product)
NI (National Income)
GDP (Gross Domestic Product)
PI (Personal Income)

Correct Answer

A. GDP (Gross Domestic Product)

Explanation

GDP (Gross Domestic Product) is a measure of the total value of all goods and services produced within a country's borders in a specific time period. It includes the value of consumption, investment, government spending, and net exports. NNP (Net National Product) is GDP minus depreciation, NI (National Income) is NNP minus indirect business taxes, and PI (Personal Income) is NI minus retained corporate earnings and social security contributions. Since GDP does not subtract any additional components like depreciation or taxes, it will have the highest value among these measures of income.

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7.

To avoid double counting in the computation of our GDP, we either count only the final sale price of an item or apply the concept of ______ to intermediate sales.

Capital consumption
Disposable income
Value added.
Price deflation.

Correct Answer

A. Value added.

Explanation

To avoid double counting in the computation of GDP, we either count only the final sale price of an item or apply the concept of value added to intermediate sales. Value added refers to the additional value created at each stage of production, excluding the value of intermediate inputs. By focusing on value added, we ensure that each stage of production is only counted once in the calculation of GDP, preventing duplication and providing a more accurate representation of the economy's output.

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8.

National income may be estimated by

Adding up categories (types) of income.
Adding up the value of products and subtracting 1) depreciation (capital consumption allowance, 2) indirect business taxes, and 3) statistical discrepancies.
Both a and b.
None of the above

Correct Answer

A. Both a and b.

Explanation

The correct answer is both a and b. National income can be estimated by adding up categories of income, such as wages, rents, profits, and interest. Additionally, it can also be estimated by adding up the value of products and subtracting depreciation, indirect business taxes, and statistical discrepancies. Both methods are used to calculate national income accurately.

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9.

If a man marries his maid, and she continues working at home (assuming that the man never pays his wife) then it is safe to say that measured GDP

Will not be affected
Will go down
Will go up
May go up or down

Correct Answer

A. Will go down

Explanation

If a man marries his maid and she continues working at home without receiving any payment, it implies that her work is no longer considered as a part of the formal economy. In the calculation of GDP, only paid work is included. Therefore, the measured GDP will go down as the maid's unpaid work is no longer counted in the calculation.

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10.

Our National Income is underestimated because we do not

Place a value on owner-occupied housing
Count do-it-yourself production
Count corporate profits
All of the above

Correct Answer

A. Count do-it-yourself production

Explanation

The correct answer is "count do-it-yourself production." This means that when calculating the national income, we do not include the value of goods and services that individuals produce for their own consumption. This underestimates the national income as it does not account for the economic value generated by individuals through their own labor and production activities.

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Macroeconomics Practice Quiz Questions

A real wage rate is a wage rate that is

Quiz Preview

The “implicit price deflator of GDP” and the “consumer price index” (CPI) are exactly the same thing.

Only Currently Produced goods and services are counted in our GDP.

Which one of the following is not part of the Expenditure Approach of computing GDP.

To change nominal values (current dollars) to real value (constant dollars) we must:

In the U.S. system of accounting, which of the following measures of income will have the highest value?

To avoid double counting in the computation of our GDP, we either count only the final sale price of an item or apply the concept of ______ to intermediate sales.

National income may be estimated by

If a man marries his maid, and she continues working at home (assuming that the man never pays his wife) then it is safe to say that measured GDP

Our National Income is underestimated because we do not